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RBA targets ‘spillover’ from central banks for strong dollar

The Reserve Bank has identified “spillover” from quantitative easing as a key concern as the Australian dollar climbs higher. Glenn Dyer and Bernard Keane report on the danger.

Reserve Bank of Australia

The Australian economy and policymakers face a prolonged period in 2013 with an overvalued dollar pressing down on the economy and activity, thanks of the actions of central banks around the world, and the RBA has few options to address it.

That’s the implication of important comments by RBA governor Glenn Stevens in Bangkok yesterday — one bolstered by this morning’s announcement by the US Federal Reserve of a new bond-buying program worth $US45 billion per month of longer-term Treasury bonds in another effort to reduce what the central bank calls an “elevated” unemployment rate.

The Fed also kept its existing program to buy $US40 billion a month in mortgage-backed securities, to try and boost the recovering housing sector and generate more jobs. It plans to keep interest rates exceptionally low until unemployment falls below 6.5% — the first time rates have been linked to the jobless rate (the current US jobless rate fell to 7.7% in November).

The announcement sent the greenback lower and pushed the value of the Aussie to a three-month high and well beyond $US1.05, adding extra pain to the biggest policy headache confronting the Reserve Bank — an overvalued currency. The strengthening Aussie dollar will bear down on export returns and profits, and will ensure the mining tax produces minimal income, unless there’s a significant slump in the next six months. Wayne Swan’s surplus is now looking very shaky.

As Crikey pointed out last week, Australia is feeling the full weight of the winners’ curse: we have been too successful in running our economy in a prudent fashion, keeping debt low, keeping growth going and employment solid. Our high AAA credit rating with a stable outlook and relatively high interest rates are adding to the problem.

Stevens and the RBA believe the expansionary monetary policies in the US, Japan, the eurozone and UK are behind the continuing strength in the value of the Aussie dollar. That strength is throttling our export sector and dampening demand and sentiment elsewhere. And judging by the Fed’s move (and the fact that Japan is back in recession and facing more spending in 2013), the upward pressure on the currency isn’t going to ease quickly. The result: economic growth in this country will continue to flag.

Stevens made his views known in a speech in Bangkok yesterday to a meeting of central bankers. His comments were the most pointed he has made on this subject so far. His observations related both to the dependence of governments on quantitative easing, and to the international impacts of that easing (note the third paragraph particularly):

[T]he balance sheets of central banks in the major countries have expanded very significantly, in some cases approaching or even surpassing their war-time peaks. Further expansion may yet occur. It is no criticism of these actions — taken as they have been under the most pressing of circumstances — to observe that they raise some very important and difficult questions for central banks. There is discomfort in some quarters that central banks appear to be exercising an unprecedented degree of discretion, introducing new policies yielding uncertain benefits, and possible costs …

The problem will be the exit from these policies, and the restoration of the distinction between fiscal and monetary policy with the appropriate disciplines. The problem isn’t a technical one: the central banks will be able to design appropriate technical modalities for reversing quantitative easing when needed. The real issue is more likely to be that ending a lengthy period of guaranteed cheap funding for governments may prove politically difficult. There is history to suggest so. It is no surprise that some worry that we are heading some way back towards the world of the 1920s to 1960s where central banks were ‘captured’ by the Government of the day.

The expansion of central bank balance sheets has created disquiet in the global policymaking community as it has led to spillovers and distortions at the international level via an acceleration in cross-border flows of capital in search of higher returns. Although central banks are effectively factoring-in these flows into their policy decisions, there is not a consensus on how this should be done and there is an argument that central bank mandates would need to be changed to appropriately account for these spillovers. At the very least, increased global cooperation is optimal on this front.”

That is, for the first time, Stevens has confirmed the RBA believes Australia is being hit by these “spillover effects” from the extra liquidity flowing from these rounds of quantitative easing and other support measures in the US, Europe, Japan and the UK. It’s impacting Australia by driving demand for the dollar (and the value of the currency higher) and making the central bank’s handling of monetary policy much tougher than it has been for decades.

In effect Stevens attributed the dollar’s strength to other central banks keeping incredibly high liquidity levels and near zero rates — forcing capital to flow to assets like the Australian dollar. This has seen central banks from developed and developing countries, big global investors such as insurers (such as Berkshire Hathaway and Munich Re), and other conservative investors chase Australian dollar assets for the higher returns and safety of our stable credit rating.

This means lower economic growth and that the RBA’s primary tool, monetary policy, is significantly less effective than it otherwise might be in responding to that lower growth. It also means less revenue for the government.

The problem for policymakers, however, is that both sides of politics have turned their backs on fiscal policy as a tool of stimulus, preferring monetary policy to do all the work. Indeed, the Coalition actually wants a significantly tighter fiscal policy.

The problem is only one for the cognoscenti while the economy continues to travel at or near trend. Should it slow, it will become a problem for all us, and our politicians will need to reappraise their abandonment of fiscal policy in favour of a monetary policy severely hampered by the world’s biggest economies having made exactly the same decision.

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  • 1
    Simon Mansfield
    Posted Thursday, 13 December 2012 at 2:02 pm | Permalink

    So are you two actually going to admit you got it wrong on this issue? Or is that a bridge too far?

    It’s actually an issue for large sections of the community - the forex exposed sector of the economy is quite large. And the depressed revenues from exports is directly impacting tax receipts and ability of the government to return to surplus.

    There is plenty the RBA can do. But it’s now very late in the game and the damage to the food processing sector to name just one - is probably permanent. As is the damage to export focused businesses run by older employers in the IT sector and small scale manufacturers who have closed up shop and simply retired.

    Stephens should resign and the government should appoint an outsider from the RBA as the next governor - like that have done at the ATO.

    But that ain’t going to happen and instead it will be another year of the slow burn to the east coast economy. 30 years of painful economic adjustment wasted.

  • 2
    Apollo
    Posted Thursday, 13 December 2012 at 2:03 pm | Permalink

    My friend has a very good idea. Every rich Labor voter should invest in building a new house/property. That should stimulate the economy.

  • 3
    Apollo
    Posted Thursday, 13 December 2012 at 2:07 pm | Permalink

    I’ve got my own investments to live on, but I know that many self-funded retirees are upset about rate cuts. But I can’t see the RBA printing money.

  • 4
    Jimmy
    Posted Thursday, 13 December 2012 at 2:34 pm | Permalink

    I think the next few months will see the high water mark for the dollar - over the course of 2013 I would think the RBS will cut rates by around 0.5% (maybe a little more) and the US will continue it’s recovery (the fiscal cliff won’t eventuate) - both of which will see a slight easing of the dollar (I am not expecting it to get much below parity but it will dip).
    China’s growth rate has also bottomed out and it rise will increase commodity prices again (although this could slow the AUD’s fall).
    As long as Europe doesn’t completely self destruct (German figures were encouraging) 2013 should see economic conditins improving globally, whterh it is qucik enough to save the surplus is debatablebut economically and small deficit won’t be the end of the world.

  • 5
    Jimmy
    Posted Thursday, 13 December 2012 at 2:35 pm | Permalink

    .

  • 6
    Apollo
    Posted Thursday, 13 December 2012 at 2:36 pm | Permalink

    I’m told that maybe businesses should form co-ops and have a good currency strategist to trade the money, by buying into a variety of other currencies before returning to Australian dollar when it is profitable instead of waiting for a long time for the dollar to fall.

  • 7
    Posted Thursday, 13 December 2012 at 2:42 pm | Permalink

    Would a Tobin tax slow the flow of funds into Australia and raise revenue?

  • 8
    Hamis Hill
    Posted Thursday, 13 December 2012 at 3:16 pm | Permalink

    But surely the economy is already being deliberately slowed by Campbell, O’Farrell and Baillieu, partly in order to deprive Federal Labour of their much promised Surplus?
    If Australian wages were higher to the point where savings markedly increased then the interest to be gained would fall and the Australian dollar would fall.
    The overall value of the wages would stay the same since the rise in numbers would be accompanied by a fall in value which would preserve some of those industries adversely affected by the high dollar.
    Those unconvinced might wish to actually read Adam Smith on interest rates and wages.
    Which led to his claim that the “Idle Rich”, who live of their debtors, had an interest to deceive and oppress the public, especially seeking to deprive the public of the benefit of any substantial savings which might deliver them from the oppressive clutches of the “Idle Rich”.
    Bringing us, through the medium of the specialised idiocy of “economists”, to the inevitable Abbott, Austerity- induced, Recession that Australians will just have to have owing to the employment of conservative politicians by said Idle Rich.
    All in pursuit of a high Australian Dollar (as owned by the said Idle Rich).
    Industry, the real source of National Wealth to be driven into bankruptcy and sold off, at a fee to the agents of the Idle Rich, to wealthy “extra-nationals”.
    This would be the chickens of the $TRILLION Howard Golden Era mortgage debt coming home to roost.
    Strangely, those $1million bungalows would assume a more reasonable price should the dollar lose its comparative value, a 50% reduction?.
    But reading Adam Smith has always been just too hard, especially for those highly “evolved” economists, so let’s just destroy the national economy instead.
    Perhaps the new MCMansion owners can keep the present mortgagees on as caretakers.
    Australia’s economic geniuses have already arranged for the McMansioneers to be caretakers for the real owners the banks; is is that the idle rich?
    In any recession there are always bargain basement prices to be had by those whose wealth is not at risk.
    This is only really a “perverse” incentive for those who must live by their labour, and who at he same time seem quite prepared to vote against their own best interests next year by putting Abbottt into power.
    Only possible, as Adam Smith argued, if these same voters are deprived of the education( which grants them an understanding of their own best interests) upon which the true operation of a Free Market exists.
    Did anyone notice a large diminution of public spending on education during the “Times which suited” Howard’s politics?
    Pearls before swine.
    A good country roo-ted by a conga line of numberdunce, middle-class suckh-les, now formed into a circle and dreaming of the day when they can become “Idle Rich” aswell.
    Can we han a parliamentary inquiry into the nature and causes of the wealth of the Australian nation?

  • 9
    Jimmy
    Posted Thursday, 13 December 2012 at 3:24 pm | Permalink

    Interesting ana l ysis from Michael Pascoe to on consumer confidence - ALP voters are rating at about 120 (20 points to the positive) while Lib voters are rating at about 84 (16 points to the negative).

  • 10
    Simon Mansfield
    Posted Thursday, 13 December 2012 at 4:21 pm | Permalink

    If Labor was not in office - my fellow Labor voters would be in the streets demanding the government save Australian industry from Dutch Disease - instead we have the ludicrous situation where the “left” is defending the only major free market left in the OECD. Pascoe like the dynamic duo that authored the above article have been wrong on the dollar and interest rates for the past two years. But don’t expect any of these characters to admit they got it wrong. Maybe even you got admit you were wrong as well Jimmy. It might even start a trend.

  • 11
    Jimmy
    Posted Thursday, 13 December 2012 at 4:29 pm | Permalink

    I would admit I was wrong Simon - If I knew what I said that was apparently wrong?
    I might have thought rates would be slightly higher and the dollar slightly lower but can’t recall making any bold predictions - if you can enlighten me I would be grateful.

  • 12
    Apollo
    Posted Thursday, 13 December 2012 at 4:45 pm | Permalink

    Calm down boys.

    I wonder if the RBA can print money to buy social benefit bonds, or similar things, or great new innovative small caps thingys.

  • 13
    Rodney Harris
    Posted Thursday, 13 December 2012 at 6:35 pm | Permalink

    I can’t recall Jimmy saying anything to warrant an admission of having got a prediction wrong. On the contrary, the sentiments he’s been expressing for a long time have been remarkably close to what’s come to pass. Not just on the economy but in other topics also. On the whole the Australian economy has been going very well and I think Jimmy seems to be comfortable with that.

    The stubbornly high Australian dollar is a cause for concern but it is difficult to see how that can be reversed. The actions of other much bigger economies in lowering their currencies is a much more significant factor than our interest rates. The perception internationally of Australia as prudent and well run is also significant and the only way to reverse that would be for our government and/or the RBA to become reckless. Not likely and not a position that Simon Mansfield would advocate I suspect.

    So we may be stuck with a high dollar for a while and some industries may need to adapt. There may be a need for the government to act to retain diversity by measures such as a mining tax, targeted industry assistance etc. They could make investments in important infrastructure to boost our competitve advantage such as an NBN.

    Personally I’m not surprised the dollar has stayed high and rates have continued to fall. Maybe the only solution is a change of government and some really reckless policies to make foreign investors lose confidence in us. That ought to fix the dollar.

  • 14
    Simon Mansfield
    Posted Thursday, 13 December 2012 at 8:05 pm | Permalink

    We have known for months that the Aussie dollar is in a speculative bubble caused - in part - by a mismatch in interest rates to our OECD and G20 peers.

    This has been ignored by the RBA as it was an easy way to keep inflation low through a flood of cheap imports. The Swiss woke up months ago and said enough is enough - we will print Swiss francs and buy euros etc for as long as it takes.

    Those of us that work in the export sector and said maybe we need to do likewise were dismissed as lazy, rent seekers who need to learn how to hedge and or move up the value added chain. Ignoring of course that many of us are already way up the value add chain and the only option left after the hedges had all expired was to start sending the jobs overseas.

    Being told by the RBA Governor and his media cheer squad led by Gittins, Pascoe, Dyer, Keane et al that we need to go broke to make room for the mining boom was stunning arrogance from people with zero skin in the game. Firing people is one of the hardest jobs of an employer and being told to suck it up ‘cause Australia should be a quarry and not a smart nation of knowledge workers is just economic rationalism gone mad.

    The penny is finally starting to drop that we are being gamed by central banks from around the world, the bulk of whom probably cannot believe we are so stupid to allow what has happened. Call it the Alan Bond economy - where you only get one chance in a generation to clean out a bunch of suckers.

    The RBA in recent weeks has begun to change its language to telegraph that intervention is always an option. It’s also dipped its toe in the water to start swapping dollars for euros etc and taking the purchases onto its own balance sheet. But seriously 2 billion dollars of such swaps is simply a joke. Match them dollar for euro from 5pm onwards until they give up and find some other nation to shake down.

    Instead what we have is an entrenched clique of economic and political careerists who have decades invested in an economic ideology that is completely out of whack with the reality of the current global financial situation in 2012. This has combined with a centre left government desperate to prove its economic credibility to make it all but impossible for anyone in a position of authority to acknowledge that circumstances have changed dramatically from what they were in 1999-2001 when the Aussie went to 50cents in the wake of the Asian meltdown. Meanwhile, we have the like of Gittins and co wanting to cheer on Labor and the RBA and the economic ideology of the past 30 years. But even Gittins is starting to modify his position since he came back from his month long overseas jaunt.

    In many ways, Alan Kolher is right where in his recent articles he essentially argues that its too late to intervene and drive the dollar down - and instead we need to embrace the high dollar and sell bonds to fund an ongoing infrastructure program; Otherwise Australia’s newly acquired addiction to a high dollar will lead to runaway inflation in supermarkets etc if the dollar was to fall in any significant way.

    I just think it would be a step forward in public policy debate for a whole slew of people to acknowledge that maybe those of us who were saying the high dollar was a disaster in the making - were maybe right - and that a whole raft of economic policies should have been acted upon months ago.

    Maybe that would then make room for some robust policy debate that might allow the nation to craft a way out of the situation we are facing - namely a perfect storm of Dutch Disease and Stagflation. Which from memory was partly cured the last time it occurred - with the Fraser government directly revaluing the dollar in the late 1970s.

    Yes circumstances have change in many, many ways since then - but it was a similar situation and the devaluation laid the foundation for a floating dollar (that promptly collapsed) in 1983 and allowed a new era of business to develop during the 1980s and 1990s that has underpinned our high wage economy for the past 30 years.

    There is obviously no easy way out of this situation - but the body politic has to acknowledge that we cannot have both a high dollar and high wages - we can only have one of those - and it doesn’t take an Einstein to know which one is actually politically feasible.

    Stevens and Gillard and the rest of the Government need to forget about their summer holidays and spend the next month working on a plan of action that heads off the coming economic disaster. But does anyone really think that in the “lucky country” our leadership is going to give up a month of food and grog to actually do their job for a change.

    And yes, it is valid question to ask what will a Turnbull led government do 10 months from now. But in the meantime the buck stops Gillard, Swan, Stevens and Parkinson.

  • 15
    Hamis Hill
    Posted Thursday, 13 December 2012 at 8:26 pm | Permalink

    Yes, print Dollars and buy Euros until they give up and find another nation to rundown.
    A sensible solution.

  • 16
    Wallace Scott
    Posted Thursday, 13 December 2012 at 8:45 pm | Permalink

    Australia and Switzerland have a deal for reciprocal pensioner payments when the citizens live in each other’s country.

    Maybe the RBA and the SNB could collaborate.

    Turnbull? My friend went to the Republican Convention and discovered that no one like him, he has no friend in the LNP.

  • 17
    Simon Mansfield
    Posted Thursday, 13 December 2012 at 9:05 pm | Permalink

    Turnbull? My friend went to the Republican Convention and discovered that no one like him, he has no friend in the LNP.

    in a sensible world that would make him the perfect leader

  • 18
    Rodney Harris
    Posted Thursday, 13 December 2012 at 9:18 pm | Permalink

    Thanks for explaining your position in detail Simon. You do make some interesting points and the high dollar does seem to be something that is clearly at the top of your list of worries.

    I think the problem is a difficult one as you say and I’m not sure that the government or the RBA really have the tools to fight it as effectively as you would like. The dollar, like interest rates, does create winners and losers. It may not necessarily be as simple as getting the dollar down at all costs. Clearly modest reductions in interest rates are having no discernable impact other than to perhaps increase the dollar. I think the last 3 rate increases have all lead to an increase in the dollar’s value. We can probably now take that solution out of the equation.

    I don’t think the government has much power to manipulate wages either. Most of the wages that have “blown out” are not going to be affected by a workchoices style reduction in minimum wages and conditions. Wages have blown out because some skills are in short supply and highly profitable companies can afford to bid up the rates, oh and there’s the issue of the high Aussie too. If you can find a country where by lowering wages and conditions it has lead to prosperity I’d be interested to hear about it.

    Perhaps we really are to a large extent at the mercy of Europe and the US. Maybe if they got their act together sooner rather than later we won’t see the flights of capital to Australia we’re now seeing. Maybe your venom toward Gillard, Swan, Stevens and Parkinson might be better directed to the people in power in the US and Europe. It seems to me to be their policies that are causing the problems and they are the ones that have the power to fix them. It is hardly Australia’s fault that we are now perceived to be a safe place to put money. Surely it is up to them to make themselves more attractive again and do it far more quickly than they have been.

  • 19
    Rodney Harris
    Posted Thursday, 13 December 2012 at 9:29 pm | Permalink

    So Simon do you think it is worth attacking the issue with fiscal policy, as Glen and Bernard suggest? Can you think of any fiscal measures that the government can adopt that would help your export oriented business? I don’t think it is easy but it seems pointless having a short term budget surplus if it leads to a long term budget deficit and the destruction of a lot of difficult to replace industries.

  • 20
    Simon Mansfield
    Posted Thursday, 13 December 2012 at 9:46 pm | Permalink

    Rodney - you misunderstood my point about wages - obviously you can’t lower them - what you can lower is the bubble dollar - it’s a case of one has to go lower - and wages obviously can’t - so it has to be the dollar.

    Australia is not perceived as a safe place to put money - it’s perceived as an easy place to make a quick buck out of a nation led by people who put economic ideology as defined by careerist self interest - ahead of national economic self interest. No other nation is following that script at present and is doing what they have to defend national economic self interest.

    The US is rebuilding its economy very nicely and will be back on top in a few short years. Most people outside the US view the US through an ideological prism that blinds them to what’s actually happening.

    As to Europe - Merkel should be hung out to dry for she has allowed Germany to dictate to the rest of Europe this past year.

    And then there’s China one of the greatest currency manipulators in centuries. How it got to be a member of the WTO without a specific timetable to a fully floating currency was the dumbest move ever by the former G7. But the short term economic interests of big corporations determined that was not to be. In the decades to come economic historians will look at this period and go WTF were they thinking.

    Meanwhile, little old Australia actually thinks the world cares that we are such a bastion of free market ideology.

  • 21
    Wallace Scott
    Posted Thursday, 13 December 2012 at 10:03 pm | Permalink

    They can have targeted low tax incentive for strategic industries to grow and certain export companies until the economic environment is better.

    Make up for the revenue by enforcing credit card or electronic transfer companies to collect GST, it has already been enforced in a few countries and certain states.

    Down the track, good items from $250 up before GST should be raised to 12% and work out a threshold for services as well. In a few years, GST should be broaden to capture more of the spendings from the tourists, and have measures to compensate the low incomes in return.

    Is there any public asset that the government can sell and say “hey presto surplus!” like Mr. Howard had the luxury to sell?

  • 22
    Wallace Scott
    Posted Thursday, 13 December 2012 at 10:10 pm | Permalink

    Online purchase overseas shopping that is.

  • 23
    Hamis Hill
    Posted Thursday, 13 December 2012 at 10:22 pm | Permalink

    The relatively high interest rates in Australia compared to other first world nations has created the demand for Australian dollars.
    This allowed the “carry trade” that Max Walsh used to comment on where money borrowed a low interest overseas was carried to high interest Australia, and that was going on during the Howard Golden era when the $Trillion mortgage blowout drove wages up (employers had to pay; who else?) and drove jobs overseas.
    The mortgage slaves ( a term from the early 1900’s) had invested in non-wealth producing assetts but, had the money borrowed been put into wealth producing industrial assetts, then that continuing slavery might have been avoided.(Adam Smith).
    Hawke’s Consensus, remember, took place at the same time as Mitterand had to withstand the run on the Franc, and to avoid a similar flight of capital Australian “Wage Restraint” guaranteed that a higher proportion of company profits could go to paying the interest on loans,(instead of wages)in order to keep the capital coming.
    High interest became entrenched, along with an increase in weekly hours worked in order for the mortgage slaves to make ends meet.
    So, if printing Australian Dollars to buy Euros, then using those Euros to buy wealth producing assetts such as capital equipment and reducing interest rates with increased wages and, perhaps a lower value to the Australian dollar, then what is there to lose?
    The Idle Rich and their inevitable and deliberate Abbott Recession(High unemployment, with Malcolm Fraser’s famous “Pool of Unemployed” maintained to keep wages low, remember) want the dollar to remain high and interest rates high.
    This is the only chance for Australia gaining extra lubrication for the economy by printing dollars.
    Sure, the value will drop, but there will be more of them.
    Again, those unconvinced can take up their arguments with Adam Smith, or dust off their copies of “The Economic History of Australai” by Professor Edward Shann, wherein the reasons for the creation of the “Commonwealth Bank” were expounded.
    Yes, you have read this important “national” work and recommend it for others??

  • 24
    Rodney Harris
    Posted Thursday, 13 December 2012 at 10:36 pm | Permalink

    Yes Simon, I acknowledge you were not saying we needed to lower wages. I think we are in agreement there and I kind of knew that. My comments were more directed at a lot of people that seem to be saying that high wages were the government’s fault and were bad. They are neither really and to your credit you don’t seem to be advocating that.

    I hope the US does recover quickly. With the election sorted hopefully the political impasses that have dogged them in the last few years can be resolved and they can realise their enormous potential. It strikes me as a country with massive resources in people and material that just has run off the rails a bit in the last 10 years or so. They need to look around the world a bit more and see what works elsewhere and apply it. Pretty sure they will do that before too long. There are some good signs. Their information industries are really powering along. Be good if they could figure out how to tax them appropriately.

    China is looking after number one as you say. They like to do things their way and are big enough to make it happen. In Australia we are a net benefactor of their success it seems to me. I wouldn’t be wishing ill on them at the moment. Currency manipulation isn’t really in the interests of the manipulator long term anyway so I feel they are allowing themselves to be exploited a bit at present. One day the balance will need to be restored and this may mean some rapid adjustment. I think Japan have probably lost the most from China’s low currency and may have a right to be unhappy with them.

    The sustained high value of the Aussie dollar and the long term nature of a lot of foreign investment here says we are seen as a safe and reliable place to invest. There’s always a balance between risk and return in investments. At the moment our combination is seen as atractive. With rates dropping the emphasis is shifting to low risk being a key factor.

  • 25
    Hamis Hill
    Posted Thursday, 13 December 2012 at 10:43 pm | Permalink

    Professor Shann explained how a shortage of labour in British Colonial Australia allowed the development of high wages, the Eight Hour Day and the Australian Party.(and Democracy?)
    And how realestate speculation around Melbourne drained the “lubricant” of money out of the banks, out of local businesses and into non-wealth producing house blocks,with the money disappearing back to the Mother Country, and inducing th 1891 Australian Depression.
    History never repeats.

  • 26
    Hamis Hill
    Posted Thursday, 13 December 2012 at 10:45 pm | Permalink

    Ausralian Labor Party

  • 27
    Apollo
    Posted Thursday, 13 December 2012 at 11:07 pm | Permalink

    Hamis, there’s a difference between ponzi speculation and investment.

    If rich Labor members build new houses, it will create jobs and spin-off jobs. These are real investments into the economy, and house price is ticking up as the economy and population are growing. As long as there won’t be a problem of glut and the rich can afford to build.

    Should they spoil themselves and build new houses for themselves, or for selling or renting out, it’s all good investment.

  • 28
    Hamis Hill
    Posted Thursday, 13 December 2012 at 11:49 pm | Permalink

    Quote: “A dwelling house, as such, adds nothing to the income of its inhabitants”.
    Take up the argument with Adam Smith.
    He explained how Lairds who, upon attaining their inheritance, invested in an extra wing for the family seat or Parisian diamonds for the family jewels, had nothing left, at last, in their treasury to pass on to their heirs.
    Those who, instead, invested their capital into “Manufacturies” or barns for the over-wintering of (otherwise to be slaughtered) cattle were able to pass on a full and viable inheritance to the next first-in-line.
    When, after the end of the ten year long Iran-Iraq war
    increased oil supplies depressed the Texas Gulf wells, and the poor white trash, now unemployed, got into their pickups and dragged their trailers away in seach of work, they left masses of LJ Hooker, western suburb style, brick veneers behind in the suburbs of Austin , Houston and Dallas, leaving the local Thrift Societies with non- performing loans.
    Was it 1991? At any rate President George H Bush pleaded with “Rich” Millionaire Americans to buy up these assetts and stop the four major American banks from falling over.
    (This was the forerunner of the GFC; no lessons learned)
    Why should “Rich” Labor members do what rich Americans refused to do; invest in non-wealth producing assetts?
    That is not how they became wealthy.
    Speculatively driving up the price of housing drives up the price of labour for employees and drives employment overseas where they do not have to service $300,000 mortgages at fourtimes the first world interest rates.
    Singapore, by design, had Australian Engineers build high rise housing, now completely paid off by that nation’s workforce, maintaining internationally competitive labour costs while Australian’s ponzi’d themselves out of work.
    Apollo, there’s a difference between ponzi speculation and investment in real wealth producing assets.
    The well heeled touts for unaffordable housing and mortgage slavery have ruined manufacturing in Australia.
    Those responsible have been as willing to expound on all this history as Abbott is keen to expose his involvement with the Brough-Ashby Plot.
    A guilty and self preserving silence, indeed.

  • 29
    Apollo
    Posted Friday, 14 December 2012 at 10:21 am | Permalink

    mortgage slavery”

    Hamis, I said the “rich” Labor members who can “afford” it as long as it won’t cause a glut. It’s not very productive for rich people to keep money in the bank when they can provide jobs and bulid new houses to meet population growth, and not being the “slaves to the mortgages” they will be able to rent out at cheaper price for tenants. There is problem with homeless and housing affordability at the moment. It’s hard for someone homeless or struggle to pay their rent to be healthy, physically and mentally to be producing wealth, productivity is more than just investing into manufacturing industry.

  • 30
    Apollo
    Posted Friday, 14 December 2012 at 10:36 am | Permalink

    Typo-build.

    Sometimes I wonder if the internet muck up the spelling.

    And it’s nothing wrong with building a new house to live in and rent out your old house.

    I do rent out a house in an area where rental price is increasing due to demand. My house is rent out especially to travelers and overseas workers who need a place to stay, and they are productive in “producing wealth” for Australia.

  • 31
    Hamis Hill
    Posted Friday, 14 December 2012 at 1:44 pm | Permalink

    According to Michael Matusik, referring to the national Census before last, there were a staggering 850,000 unoccupied houses in Australia.
    Certainly, Apollo, invest in new housing to create employment opportunities, but remember that the GFC was caused by on oversupply of housing undertaken to stimulate the economy in the US as manufacturing was sent to Asia by the likes of Romney.
    Ultimately, the renters or the mortgagees have to find the income to pay for the housing and that will not come from the house itself and and dollars generated by the building industry wages or profits will not be enough.
    Those travelers and overseas workers are not producing any more wealth by occupying a house than they would be sleeping in a swag on the banks of a creek in the Central Queensland mining towns.
    A house would partly pay for itself if it generated its own power, captured and stored its own water, allowed its inhabitants grow some of their own food; in other words produce some wealth to match the cost of the investment.
    Something that retirees on fixed incomes would like considering how all their costs; rates, power, water, food, keep rising higher than their income does.
    Should the government resume some those hundreds of thousands of empty homes to solve the homelessness problems the subsequent drop in rents across the board would, in turn reduce the value of homes and result in mortgages higher than the value of the house.
    Banks might fail as in the GFC for the same reason.
    Housing is not a free market it is a “Fixed” market and this is a national disgrace.
    Low housing costs and subsequent low wage demands would underpin manufacturing, just as it did in post-war Australia, where workers lived in three bedroom housing commission cottages and had enough left over to buy the victa mowers the refridgerators, washing machines and cars which they produced at work.
    Speculators destroyed all that, starting in the 70’s.
    Hard to see a solution, unless manufacturers provided their own, speculation free housing to their employees.
    But lazy, complacency seems to be the rule in OZ.
    Apollo being the exception in actually building another home, nothing lazy about that, but where are the other jobs coming from?

  • 32
    Jimmy
    Posted Friday, 14 December 2012 at 1:49 pm | Permalink

    Hamis Hill - “remember that the GFC was caused by on oversupply of housing undertaken to stimulate the economy in the US as manufacturing was sent to Asia by the likes of Romney.” That is a massive over simplification if ever I heard one - you don’t attribute anything to the predatory lending practices or the bundling of junk mortgages which were sold as AAA investments. The bankers who did those things weren’t trying to stimulate the economy just make a profit at the expense of the uneducated borrower and the unknowing investor.

  • 33
    Apollo
    Posted Friday, 14 December 2012 at 2:55 pm | Permalink

    Hamis, building new houses does not only means jobs for construction people only. It means jobs for material suppl.i.ers and manufacturers as well. Plus when more people are employed they have disposable incomes to spend in the economy that will create demand for jobs to provide goods and services for them. And I am talking about “rich” people who can afford it, they don’t have to service mortgage and they can afford to rent out cheaply, the oversupply of housing that you quote are either from overleveraged people or from speculators who would not rent them out anyway. It’s a seperate category, and if you want to curb it, reform negative gearing but give people enough time to sell off their properties so they won’t be caught with loss and debts.

  • 34
    Hamis Hill
    Posted Saturday, 15 December 2012 at 2:49 pm | Permalink

    Jimmy, those predators you mention do not appear to be very intelligent considering the results of their actions. And Apollo should, like yourself, reconsider that house building was the only industry left in the US that could provide employment, while the likes of Romney relocated manufacturing overseas.
    In a free market this oversupply should have resulted in a vast reduction in housing prices, which would in turn have reduced wage demands and made US manufacturing more internationally competitive.
    Instead of having their mortgages renegotiated to allow these homes to continue to be occupied but at at lower costs the lenders resorted to evictions and boarding up of homes in order to artificially restrict the supply and keep the prices and the values of the mortgages high.
    The technical term when applied to the much more strictly controlled stock market is called “Asset Price Maintenance”, and in that market is an offence.
    Are you both such suggesting that the father of economics, Adam Smith is, in fact, a simpleton, for the supposedly “oversimplified” arguments put forward here are his arguments, not mine.
    Re read the book, and you may find that the bastard children of Smith have, the manner of tangled webs of deceit, constructed a “Gordian Knot” out of Smith’s logic and facts, the better to enslave the ignorant to their “overcomplicated” comprehensions of matters economic.
    They didn’t call it the “Age of Enlightenment” for nothing.
    It pays to understand that money was not actually invented yesterday by Nobel Prize winning economists, with all others preceding them living in the Paleaolithic.
    Still, as they say you are entitled to your own, “invested” opinions but your folly, if you are not so egotistical as to believe such a thing is not possible, just might extend to adversely affecting everyone else in the economy. No Problemo?
    Do not do any extra reading of the simpleton arguments of Adam Smith, by way of ameliorating any defects of understanding; it is clear that none of those batardes who call themselves economists read Adam Smith, Moral Philosopher and their putative intellectual father.

  • 35
    Hamis Hill
    Posted Saturday, 15 December 2012 at 5:42 pm | Permalink

    Apollo and Jimmy, reply in moderation. Too long, perhaps.

  • 36
    Apollo
    Posted Sunday, 16 December 2012 at 5:16 pm | Permalink

    Hamis, your obsession with Adam Smith is getting overboard. It is nearly 2013 now, try to live in this time and learn about today’s economic structure. Australia is not a feudal state or undergoing an industrial revolution.

    You should not be comparing Australian housing market to US housing market. First of all treasury and OECD report that we don’t have a housing bubble and people are well placed to meet their mortgage repayments. Read BK’s “OECD hands govt praise — and an awkward to-do list”

    Secondly, housing availability is not uniform in all locality. There can be shortage in one while there is oversupply in another. You go to mining towns a see how people struggle to find a place to rent even when they are willing to pay over 1K per week. A smart investor would learn about the market, whether there is a demand from a demographic of retirees, DINKYs, Yuppies, etc. at a certain locality.

    Australia’s yearly net migration alone is around 200K, that’s the population growth without counting birth rates yet. Suppose 4 people will live per house, 200k will require 50K of housing units.

    If Labor people are smart, they can strategically invest in electorates where they will create jobs and win the seats. They don’t even need to be very rich people. Two members of one family can be partner to invest, or union members can make group investments. They should have connection to know where to get cheap wholesale lands, to build strata housings or retirement village and get approval, and tradies in the unions for advice on materials and services quotes. Just as long as they pick a good locality for the investment.

    That’s final Hamis. I won’t reply to you anymore on this subject. Try do have practical experience in the business field. You sound like a book worm, not that’s there is anything wrong with it but there’s big difference in how life manifests in reality and ideologies.

  • 37
    Hamis Hill
    Posted Sunday, 16 December 2012 at 7:14 pm | Permalink

    Apollo, you obviously have not read Adam Smith; a final nail in the coffin of any credibility you might have in matters economic.
    Sadly your compatriots share your ignorance and are merely doomed to reinvent wheels created many many years ago.
    That Asian Century, which is about to overrun this “She’ll be right complacency”, you can be sure, will be based on a studious knowledge of Adam Smith.(Did the Fathers of Federation read Adam Smith? everyone did!)
    It is a result of respect for history, even when it is not their own cultural heritage.
    A cultural heritage, it seems, that antipodean, house worshipping numberdunces, illiterates and Howard mortgage debt-dupes do not even have the wit to understand.
    Do yourself a favour, visit The Gutenberg Project and download a free copy of “An Inquiry into the Origin and Causes of the Wealth of Nations”, and do your own nation a favour.
    The pathetic and snobbish middle class property fixation of Australians, acclimated to their own narrow self-selected cultural desert, has resulted in the first generations unable to afford their own homes.
    The result of never having to strive and having high living standards handed to them on a plate, the ultimate unearned and unappreciated entitlements derived from the struggles of previous generations.
    Your kind are doomed, that’s final, enjoy the Cricket.
    Such is exactly the result predicted by John Dunmore Lang if Irish Catholicism and the Anglican Class system dominated public education in Australia. History??? Australian History???
    And why Lee Kwan YU (Who?) called Australians the Poor White Trash of Asia.
    It is much too late now for Abbott to resurrect the Colombo Plan.
    The position is completely reversed now and if Australians want to survive they better start thinking about sending their children to Asian education centres, centres of excellence.
    And, by the way, the Abbott recession is going to burst that pretty little housing bubble, big time.
    You don’t believe this?, them just inquire into the massive change of home ownership in Sydney’s Eastern Suburbs in the aftermath of the Great Depression.
    You are looking at an imminent re-run of your own history, but do not have the slightest inclination to contemplate your own cultural heritage.(Kangaroos, Meat Pies and Holden Cars!)
    Must be the flouridation.

  • 38
    Hamis Hill
    Posted Sunday, 16 December 2012 at 7:44 pm | Permalink

    In “The Economic History of Australia” it was explained that government revenue in the founding colonies was gained from the restricted sale of “Crown Land” for housing.
    Fast forward to the present and this function has been subverted by local government, dominated by shonks from both major political parties, which carefully and corruptly arrange for any rezoning of land for residences to be vey profitable to their cronys.
    This is the name of the development game, as any child who got bored with Monopoly at an early age would understand.
    So all these schemes to bolster the economy by strategic investments by wealthy people in housing for the good of the nation, no bloody chance there, Ockers, of any background book-worming into the subject?
    There certainly is is a big difference in how life manifests in reality.
    But some are so wealthy they can afford to have their own reality unperturbed by anything found in a history book.
    The Economic History of Australia? Rubbish! No Self-respecting business would ever consider History!

  • 39
    Apollo
    Posted Sunday, 16 December 2012 at 11:06 pm | Permalink

    Bahahaahaha, somebody missed the prozac today. I’m so glad I don’t depend on any drug.

  • 40
    Apollo
    Posted Monday, 17 December 2012 at 1:52 pm | Permalink

    Just in case anyone who read my comment and Hamis’ and think that I was suggesting rort, I was not at all.

    The Labor members are broad based enough so they should know individuals, vendors, and councils who have available lands for sales. And buying where the council is pro-development and will approve your application is crucial, you don’t want to buy in a NIMBIN place and the best you can do with your land is growing poppy.

  • 41
    Apollo
    Posted Monday, 17 December 2012 at 1:53 pm | Permalink

    NIMBY

  • 42
    Hamis Hill
    Posted Monday, 17 December 2012 at 10:16 pm | Permalink

    Australia’s 1891 depression was caused by people buying up land around Melbourne.
    Businesses, which depended upon overdraughts to keep their enterprises going, found that all the money was now tied up in land and the speculators had not bothered to re-invest their profits in said banks.
    So businesses could not buy supplies or pay their wage bills. Depression followed.
    Surely,no-one would repeat this sort of error in the middle of a Howard induced $1Trillion mortgage debt blow-out which is draining $60Billion in interest payments out of the economy every year and now directly threatening businesses?
    With the East coast states already in recesssion as a result of slash and burn conservative austerity measures?
    Hey rich Labor people empty your bank accounts and buy land!
    Better wait till after the Abbott Recession we are bound to have if this idiot gets a chance to spread this conservative austerity continent-wide.
    Land and housing will be dirt cheap and the banks, if they are still solvent will be happy to sell to rich “Foreign”” people; the ultimate “Ocker” nightmare.
    Being on drugs might excuse such thinking, but mindless ignorance is probably the cause.
    The “Wealth of Nations” would be good reading for the summer break.

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