Amused to Debt

Now I am not a financial expert at all, and so the values here may be inaccurate, but they are the best that I can find and I think highlight what a huge problem debt is to Australia.

The total household debt in Australia is currently about $650 billion or over $32,000 per person. In 1992, the ratio of household debt to income was 56%, in 2002 it was 125%. It is now over 150%.

The graph above is from late 2006 and is from the very good website Who Crashed the economy? His graph on his thread “It’s never a better time to buy” shows just how much our interest repayments as a percentage of income increased over the time of the Howard government. As the thread says:

When the boomers had 17% interest rates that they will never let anyone forget, house prices and debt was reasonable. As a result payments, the average Australian household put away a little more than 5% of household disposable income to service the mortgage. Even with rates today a faction of what it was in 1989, we have so much more debt and as a result the average household has to put away 11.4% of household disposable income to service the mortgage.

Julie Bishop writing for Business Day says that “Australia’s debt has grown rapidly from less than 80% of gross domestic product (GDP) in the early 1990s to now stand at almost 170% of GDP”. A question to Bishop: Who was in power for 12 of those years?

Debt is not a problem, as long as you can service the debt, but what happens when we cannot. What will be the effect on all of us?

Have we amused ourselves to debt?

77 Responses

  1. Back in April Ross Gittins ran an article titled She’ll Be Right…Unless Debt Bites and it confirmed what I’ve been harping about for what seems like an eternity:—-unless-debt-problems-bite-20080404-23rf.html?page=fullpage#contentSwap3

    “what could go wrong? I’ll tell you. The thing we have to worry about from the Americans is not their recession, as such, but the turmoil in their financial markets, which is spreading a credit crunch to the rest of the developed world, including us.

    Most of Australia’s businesses haven’t borrowed a lot over the past 15 years or so, but our households have. In 1994, the ratio of household debt to annual disposable income was about 65 per cent. By 2000 it had rise to 100 per cent and now it’s about 160 per cent.

    Much of this money was borrowed on US financial markets by our banks and non-bank housing lenders at interest rates that were too low, not adequately reflecting the risks involved. Now, thanks to the subprime debacle, the US lenders have flipped to the other extreme, charging a lot higher rates (despite the big cuts in US official interest rates) and being a lot more choosy about who they lend to.

    Some of our non-bank lenders have gone out backwards and our banks have to pay a lot more for foreign borrowings. Our non-bank lenders made a lot of bad loans and our banks have probably made some, too – they always do.

    So now the banks have passed their higher borrowing costs on to business and home-loan borrowers, in addition to the rate rises engineered by the Reserve Bank. But that’s not the biggest worry; the Reserve can take that into account in its own rate moves.

    No, a bigger worry is that the banks – anxious about their own unwise lending and its effect on their balance sheets – may start to ration their new and rollover lending, calling in loans and being reluctant to lend even to soundly based businesses.

    When businesses and households start to worry about the size of their debts and begin cutting back their spending as a precautionary measure, that’s when the economy really starts to slow.

    And it can feed on itself, with a small slowdown and small rise in job losses scaring people more and leading to a bigger slowdown and bigger job losses.

    That’s when problems in the financial economy cross over into the real economy of consumer spending and employment, turning a soft landing into a hard one.

    There’s no certainty that will happen, but it is a bigger risk than you’d like it to be – and than the authorities are ever likely to admit.”

  2. Julie’s not very quick on the uptake really. In October when she wrote ” Failures catastrophic for US economy’ in The Age, I could sense she was positioning herself for a swipe at the current government as she tried to impress readers with her insights into what was happening in the US. So, I couldn’t resist having a quick swipe in anticipation:


    Running up to his electoral defeat last year Mr Howard kept repeating the same dangerous mantra “interest rates are lower and people can borrow more.”

    John Howard said the heavier debt burden reflected rising affluence.

    “It is the case that people are buying ever more expensive houses, and they are doing that because of a number of factors,” the Prime Minister said. “One of them is that interest rates are lower and people can borrow more.”

    Yes, our hero was pushing a dangerous mantra indeed. In his opinion, it seemed as though a new era had arrived under his leadership.

    He then went on to say: “Debt levels are rising, but we are choosing to use the debt more productively to buy assets that traditionally rise in value, like shares and property.”

    At around the same time the Reserve Bank’s figures on household finances showed that assets were rising faster than debt (in spite of many Australian’s carrying record levels of debt). Households, they claimed had assets, including housing, superannuation and other investments, that are equal to eight times their annual income.

    I guess now it’s all Kevin’s fault that the bubbles have burst?

    And to imagine J.K. Galbraith raised his concerns about the markets and US economy (which is also applicable here) in 1998 by saying:

    There’s one thing that should warn everybody. If you forget everything else tonight, remember this, that when you hear someone say, “We have entered a new era of permanent prosperity,” then you should immediately take cover, because that shows that financial idiocy has really taken hold and that history, all history, is being rejected.

    This is the warning of the present time. We had a slight indication of that in August and September. It’s a warning that everybody should have in the back of her or his head. The effect of the speculative collapse is something which economists have not yet, even to this day, fully appreciated, because it is not the collapse that causes the trouble, but the further effect on investment, and also the further effect on consumer spending.

    A very large part of our present consumer spending is based on debt creation, credit cards, or the impression given by stock market gains or real estate gains. If and when the end comes, the economic effect will be the drying up, the slump, in consumer expenditure and, of course, the economic effects of that.

    * Posted by: John McPhilbin on September 29, 2008 1:11 PM

  3. John Mc – yep – Howard’s meme of “interest rates are lower and people can borrow more” was dangerous.

    And Howard’s SOP is that all good things are because of him, and the bad is all down to individual responsibility.


  4. Joni

    “Howard’s meme of “interest rates are lower and people can borrow more” was dangerous.

    Adding further, his core belief, like former Fed Chairman, Allan Greenspan was “We have entered a new era of permanent prosperity.” In fact, everytime Howard visited the US he sought time with the ‘Maestro”

    And, just recently Greenspan was forced to admit his thinking was flawed. The question now is whether Howard could ever admit such a fatal mistake in his own thinking? I think not!

    Greenspan’s model ‘added to crisis’

    Former US Federal Reserve Chairman Alan Greenspan, describing the current financial crisis as a “once-in-a-century credit tsunami”, has acknowledged that the crisis had exposed flaws in his thinking and in the workings of the free-market system.

    Greenspan told the House Oversight Committee that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had been proven wrong by the current crisis. He called this a “mistake” in his views and said he had been shocked by that.

    Greenspan said he had made a “mistake” in believing that banks operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions.
    Greenspan called this “a flaw in the model that I perceived is the critical functioning structure that defines how the world works”.

    The head of the US central bank for 18 years, Greenspan said in his testimony to the committee that he and others who believed lending institutions would do a good job of protecting their shareholders were in a “state of shocked disbelief”.
    During questioning, Greenspan was challenged about various statements he had made during the five-year housing boom including forecasts that a nationwide collapse of home prices was unlikely.

    Greenspan said he had failed to predict a significant decline in home prices because the country had never experienced such a decline before.

    Greenspan said that the current crisis had “turned out to be much broader than anything that I could have imagined”.

  5. John you maybe able to answer this? I think I read somewhere that the upper level for the ratio of household debt to disposable income was about 160%. Beyond that people couldn’t live, i.e. pay for normal living expenses and service the debt.

    I distinctly remember Keating saying that the figure getting over 60% was a danger sign for future hardship and he wanted to encourage people to save instead of going into debt to spend. Of course his emphasis on savings didn’t rapidly stimulate the economy, which is why Howard almost immediately changed the emphasis from savings to one of spend at all cost, even if that meant going into unsustainable debt. In the meantime he also shifted debt from government onto the people so he could (falsely) lay claim to being a great economic manager.

  6. Joni

    And imagine, THE AUSTRALIAN had to make an FOI request to find out the truth about our own banks lending practices. Something that was surely obvious to Howard and Costello given that banks were as profitable as the miners and added considerably and increasingly, year after year to government coffers. It should have been obvious that personal debt was also a major driven of our economic growth along with mining.

    What do we do now that both bubbles have burst?

    AUSTRALIA’S big banks ignored the sub-prime crisis in the US and actively took greater risks in the home mortgage market to see off a challenge from rival lenders.

    The banks not only relaxed their lending standards in recent years – ultimately luring many customers into financial distress – but held off tightening their terms of credit to build a better market position.

    Reserve Bank documents, obtained by The Australian using Freedom of Information laws, show the change in lending standards was driven by competition and the housing boom”

  7. A housing boom in part stimulated by Howard pumping 50 billion dollars into it.

  8. Adrian

    Keating was right because he was an economic realist. Howard got caught up in the ‘new era mantra’ which was obvious by the amount of bragging he and Costello were doing.

    To illustrate the principles of basic economics at work, I refer to something that Jim Rogers wrote in 2003, and given we operate on very similar model it goes a long way in explaining why we’ve arrived at where we are now – just and the US and UK have found out.

    “ The current bubble that Greenspan does not see is the consumption bubble he is causing. He has the lunatic idea that a nation can consume its way to prosperity although it has never been done in history.”

    In America, if you have a job, you pay taxes. If you buy a stock and you get a dividend, you pay taxes. If you have a capital gain, you pay taxes again. And when you die, your estate pays taxes. If you live long enough to get social security, they tax your social security income. Remember: you paid taxes on all this money when you originally earned it yet they tax it again and again. These policies are not very conducive to encourage saving or investment. They promote consumption.

    By contrast, the countries that have been doing well the last 30 or 40 years, are the countries that encourage saving and investing. Singapore is one of the most astonishing cities in the world. Forty years ago it was a slum. Now, in terms of per-capita reserves, it’s one of the richest countries in the world. One of the reasons Singapore was so successful is its dictator, Lee Kwan Yu, insisted that everyone save and invest a large part of their income. Whatever Lee’s policies toward personal freedom, at least he forced people to save and invest. History shows that people who save and invest grow and prosper, and the others deteriorate and collapse.

    Artificially low interest rates and rapid credit creation policies set by Greenspan and the Federal Reserve caused a bubble in the US stocks of the late 1990s, policies now being pursued at the Fed are making the bubble worse. They are changing it from a stock market bubble to a consumption and housing bubble. And when those bubbles burst, it’s going to be worse than the stock market bubble, because there are many more people who are involved in consumption and housing. When all these people find out that house price don’t go up forever, with very high credit card debt, there are going to be a lot of angry people.

    No one, of course, wants to hear it. They want the quick fix. They want to buy the stock and watch it go up 25 percent because that’s what happened last year, and that’s what they say on TV. They want another interest cut, because they’ve heard that’s what will make the economy boom.”


    And interest rates around the globe were artificially low because of China’s cheap manufacturing and exports kept a lid on global inflation which led many ‘new era enthusiasts’ to declare inflation dead. Ben Simpfendorfer, China strategist for the Royal Bank of Scotland, puts it succinctly: “Where China was a deflationary influence over the last 10 years, it will be an inflationary influence over the next 10 years.”

  9. Signs of the times (purely anecdotal but significant)…

    …daughter is in fitness industry and the largest gym she works for (national and owned by a bank!) is reducing its art time/casual staff by 50%…

    …son is in industrial pneumatic equipment (international co.)…his company profits are down 30% already…he is a sales manager and has been told they cannot recruit any staff until further notice…his sales force of four, should be nine…

    …daughter in law works for bank – we are all waiting…

    …son in law still negotiating jobs (three at present…including Rio T who are dithering about)…

    …oh! and our super (cash) returns this month are down from 6.5% to 4.5% – always said none of us would get off scot free…we’ll still have to pay for others…

    …I’m still expecting a “big surprise” in the re and/or insurance sector…I reckon that will signal the “bottom”…

    …ASX down 309.69 in November (we keep a running, daily tally) (eg Oct 649.04 down, Sept 542.27 down, Aug up 240.40, July 272.51 down etc ) January was the signal for us -down 722.55…

    …one of our family sayings – “…own everything…” – the only thing anyone owes money on, in the three families, is two mortgages…and they have both overpaid to create a buffer…

    …its going to get nasty, JMc, especially when the have nots are loosed on the streets…

    …as I said – signs of the times…

  10. Exactly TB, economic reality is starting to bite in a major way.

  11. TB

    Last year when I started the issue of personal debt and dodgey lending I was accused by some of being an alarmist. And no, you weren’t in that category simply because your observations were very similar. It’s quickly becoming a reality, unfortunately.

    How could Howard and Costello have been so blind?
    John McPhilbin
    Wed 29 Aug 07 (05:21pm)

    I, like yourself, Geoff, have been expecting an economic slowdown and some major correcting for some time now.

    The obvious and increasingly prevalent use of debt to fuel economic growth (including the staggering use of credit cards for daily living expenses) has been used to create a number of bubbles (i.e. stocks, housing, and consumer spending) and needs some serious attention by way of effective government intervention and controls.

    Just how deep and wide these corrections will be is hard to really tell.

    We seem to have been lulled into a false sense of growing affluence which is ironically the same phenomena that preceded the Great Crash of 1929 and the Great Depression that followed.

    Jacob Saulwick of the London Telegraph wrote on June 26 something that really caught my attention:

    “THE risk of a 1930s-style economic slump” he claimed “has been heightened by “euphoric” markets tapping cheap global credit, one of the world’s pre-eminent financial institutions has said.

    In its annual report the Bank for International Settlements noted that the conditions which led up to the Great Depression of the 1930s and the Asian crises in the 1990s were reflected in the current environment.

    “Each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a ‘new era’ had arrived,” the bank said.

    The BIS, the central bankers’ bank, pointed to a confluence of worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

    “There is a high degree of complacency, coming out of the long period of low interest-rate environment, and a low volatility environment,” Singapore’s Second Finance Minister, Tharman Shanmugaratnam, said.

  12. It’s been this way for quite a while now which is why JWH lost the election. He kept on repeating, You’ve never had it so good, while people were struggling. It’s not new.

    To me, the reality was that families were existing on credit..evidence being the number of young mums paying for groceries at Bi Lo on credit cards.

    And yes our super is down the tube too. Hubby is 60. How to make the house repayments, the council rates etc on an old age pension. Well that can’t happen, and so it’s work 68hr weeks and no holidays or RDOs until we drop.

    Grizzle for the day completed.

  13. Min

    That’s the sad reality isn’t it…

  14. Ratty and Greenspan must have been the eternal optimists.
    I don’t have a degree in economics, but to believe, as they and many others apparently did, that we were in an era of permanent prosperity, sent cold shivers up my spine.
    FFS, what about the recession we had to have only 20 years ago? How could they possibly be so “mistaken” as to believe that there would only be the rosy boom times without the bust?
    In some ways (only in my sick and dark fantasy world, of course), I would have liked to see Ratty and Tip explain their way out of this little lot and keep parroting their surplus good, deficit bad mantra.

  15. I got the idea to call this thread “amused to debt” from the Roger Waters CD called “Amused to Death”… which has this lryic:

    And then the alien anthropologists
    Admitted they were still perplexed
    But on eliminating every other reason
    For our sad demise
    They logged the only explanation left
    This species has amused itself to death
    No tears to cry no feelings left
    This species has amused itself to death

    Somehow the lyric seems appropriate.

  16. it do, joni and I like your new avatar – that’s appropriate too!

  17. OT

    More rain in Brissy! Just like the good old days that some can’t, or won’t remember!!

  18. Thanks TB – the new avatar is for World Aids Day on the 1st Dec.

  19. Yep! That’s why I think it is approriate…maybe you should consider a thread re AIDS for tomorrow?

  20. Already working on it!

  21. Just testing 😆

  22. On topic…when there is a correction there is always some due to their over exuberance in their borrowing practises that get burnt…the nature of the beast I’m afraid and it is like two peaks rising to the sky…the debt peak has soared so high that the consolidated value peak has been left in the shade…hence inhibiting growth.

    This has eventuated under the stewardship of many governments in the past and I dare say the future because the system is stuck in the mud that deters evolcentricnomics!

    It is like the law of the jungle in a way…the top of the food chain feasts whilst the others only exist to ensure the constant supply.

    I don’t have any answers on this but I sense that there will be no progress until there is shift that will only happen from catastrophe due to our stoic nature.

    Off topic…I have decided on a hiatus and will be going off line for I don’t know how long soon…keep well, Blogocrats.

    ps The share market will mostly rebound in the next five years…same old, same old…

  23. Joni, John et al, you have all produced some good arguments and some fairly credible evidence to back it up, however I wouldn’t be too harsh on debt itself.

    I’m from the school that teaches that not all debt is bad. Mortgages, as the best example, are good debts, because they are borrowings against an asset that will appreciate. Car loans, credit card etc are a bad debt because the assets they are used for generally depreciate.

    Because I have borrowed heavily for property, I have been able to increase my assets considerably. As a guess I’d say that for every dollar I have borrowed I have made two dollars. Debt helped me produce a profit.

    Often people are asked what they would do if they won a million dollars. Most say that they’d spend it on a big house. Myself, I’d use that million dollars to go into debt. I’d use my million dollars as a deposit on five houses.

  24. Scaper, come back real soon.

  25. Miglo

    There’s no doubting there’s good debt (productive) and bad debt (destructive), however, the ratio in recent years have moved well and truly in the favour of bad. It’s the sheer recklessness that’s been encourage.

    Remember the ‘Equity Mate!’ ads by the Commonwealth Bank? Housing prices skyrocketed and all of a sudden everyone was encouraged to take out loans for cars, boats, weddings etc against their growing equity. All of a sudden those who had worked and saved hard to pay off their mortgages were encouraged to take on loans and start living a little.

    Give people enough rope in the form of easy money and they’ll hang themselves. Oh, and Howard and Costello had interest rates under control.

    Then there was the push by banks for people to take on margin loans to increase their returns in the stock market.

  26. Miglo the problem is that property doesn’t always appreciate and in fact is in a bubble that must burst. Why do you think the US is in such deep poo as they are paying off mortgages on properties that have plummeted in value. Same happened in Britain under Thatcher.

    John has posted the figures at just how much Australian properties are overvalued, especially in Sydney and as compared to the rest of the world. That cannot go on so there is an adjustment that must be made and that adjustment must be down. Rudd pumped money into the FHOG for that reason, to temporarily halt the plummet, but that will not last and only make the correction worse.

  27. scaper, make that very, very temporary! Yah, hear? 😉

  28. 27. Caney | November 29, 2008 at 6:01 pm

    Caney, don’t I know that driver from somewhere? Shouldn’t he be wobbling a lot more?

  29. Miglo

    Don’t worry I’m not trying to pick on you Migs, and we’ve discussed your investing before this – you’re obviously one of those people who’s been sensible and taken advantage of the opportunities. However, to quote Michael West:

    “The shape of the world economy has changed in the last 18 years. China has boomed.

    Although Australia’s GDP growth has historically tracked the US, this time we are in a particularly fortunate position of having a mining boom (although commodity prices have begun to come off sharply). And Government debt is not an issue.

    That said, Australia like the US is a current account deficit country (currently 6.2% of GDP) which means our banking system borrows from the rest of the world to support our lavish lifestyle.

    No longer can this country rely on a debt-funded spending spree to fuel a recovery. This is bad news for both the banks [business] and the consumer.”

    I know Howard and Costello laid claim to being the masters of the economy and interest rates but that is simply no longer a viable claim, and it never really was. They were simply riding a favourable economic wind.

    They were also front and center when it came to cheering Australian who took advantage of artificially low interest rates by taking on boatloads of debt. Nor did they monitor the lending practices of the financial sector, in spite, in spite of the obvious lending lunacy that was going on.

    In fact it was reported just recently that our “economy is even more vulnerable to an economic downturn than the struggling US, leaving us facing the spectre of soaring unemployment, falling house prices and a long-drawn out economic slump.

    The bleak picture is painted by economists who point to a series of data showing how we compare to the US.

    Australia has some of the most expensive property in the world, relative to incomes, according to the Demographia International Housing Affordability Survey.

    It says the median Australian house price is 6.3 times median household income, higher than the US, Canada, New Zealand, Ireland and Britain. A median Sydney property will cost nine times the average Sydney income.

    Australia also has more debt per household than the US, with Australians owing 177 per cent of household income in mortgage and other debts compared to 138 per cent in the US.

    This is coupled with the fact Australians save an average of 0.5 per cent of their income compared to 2.6 per cent in the US.”

  30. #22 scaper:

    First: Thanks for alerting me to the band getting back together – it’s much appreciated.

    Second: You sound like a decent, hardworking fellow, and a very fair employer. If that’s the case, than you deserve all the good things that come your way.

    Third: All of us – all of us – have said things online, in the heat of the moment, that we’ve later regretted. So you shouldn’t let it get to you – the people concerned will understand this.

    Fourth, I hope your ‘hiatus’ has nothing to do with what I allude to above. If it does, that’s a shame. If not, best wishes and see you when you reappear.

    (Fifth: If you have no idea what I’m talking about, just ignore this comment and it will self-destruct.)

  31. Miglo writes: “Often people are asked what they would do if they won a million dollars. Most say that they’d spend it on a big house. Myself, I’d use that million dollars to go into debt. I’d use my million dollars as a deposit on five houses…”

    Then you’ve learnt nothing from the credit bust.

    You lose your job in the coming recession, fail to make the mortgage payments and the bank forecloses on all 4 houses. They’re then put up for sale on a depressed housing market and sell at a price significanlty less than what you paid for them.

    The banks don’t give a shit, because they’ve recovered their lendings. You, however, have blown your million dollars or at least a goodly proportion of it.

    As the old ads say: Equity, maaaaate.

  32. scaper – you have lots of friends here and they’ve known you a lot longer then I have. Your hiatus is something they hope will end soon but I’m not so sure. On one hand I would rather not deal with you as a lot of what you say(especially about women) bugs me, in another way it’s kindy fun to play with you.

    So I guess you better come back soon, that way I can decide either way

    C U soon – bash boy :air kiss:

  33. 32

    or as Tony Soprano say’s – buy land, God ain’t making anymore of it 🙂

  34. 27. Caney | November 29, 2008 at 6:01 pm

    Good one Caney. I have asked Neil about Howard’s record current account deficits but he doesn’t answer.

    It is particularly galling as a good chunk of Howard’s 1996 election campaign was based on the debt truck and getting down the current account, not on government debt, which was only mentioned a few times. Howard did this of course because the current account figure was much bigger and looked better on the truck and worse for the government. But as history has proven he had no intention of making the slightest attempt to bring down the current account, that meant good economic management and spending on people, education and infrastructure, the very things he slashed and never restored throughout his entire 11½ years in office.

  35. W.A.’s rich seem to be getting hit hard. Bloody margin calls!,25197,24723427-5013404,00.html
    AFTER the boom comes the bust.

    Perth’s prestigious western suburbs, which until only a few months ago was the nation’s capital of real estate gains, is being redecorated with for-sale signs.

    Cottesloe alone, the suburb that epitomised the beachside-café lifestyle of the city’s newly rich, has more than 130 properties on the market. Of those, more than 100 are asking seven figures or more.

    Murray Bathgate of DeeSeed Real Estate said Cottesloe normally averaged a total of only 20 to 30 properties for sale at any one time. “It’s unbelievable. It’s pretty harsh for everyone. The agents are hurting as well. The general public will probably love the fact that real estate agents are hurting. It’s bloody hard work.”

    Bathgate said the western suburbs were Perth’s “stockmarket belt”, which had been hit hard by falling share prices and margin calls. “I think a lot of people have a lot of debts they can’t service,” he said. Also, immigration from overseas had slowed dramatically.

    “Perth has had enormous growth, and now things have gone very very quiet. Even when you get an offer it is subject to the sale of a property. There has been an enormous slowdown in the number of people coming in (from overseas) and buying here because they can’t sell their properties there. We are in a vicious cycle.”

    Prices had dropped furthest at the top end of the market, Nedlands agent Chris Shellabear said. “The better properties have dropped by 12.5 to 15 per cent,” he said. “Some other properties by 20 to 25 per cent. Some of the bigger percentage falls are occurring at the top end because they flew higher and longer than those in the other part of the market.”

    Dalkeith agent Gordon Davies said he had reduced one property – on Doonan Rd, Nedlands – from $2.6 million to $2 million.

    “From the June quarter to the September quarter the turnover (in the western suburbs) has dropped 54 per cent,” Davies said. “And the September turnover is one-tenth of what it was normally over the last five years per quarter.

    “And this quarter is worse. That’s the way it’s shaping up. I’ve been through this before, but in 40 years of real estate this is the worst I’ve ever seen it.”

    The effect of the downturn has forced vendors in Peppermint Grove, once dubbed Australia’s richest suburb, to go public with their sales.

  36. What happened to the new Coalition government there, they promised prosperity and to fix WA’s economic woes?

  37. they got elected AoN

    they got elected

  38. TB, 29 .

    LOL Mate, if he were a ship he’d be about to hit … an iceberg!

  39. I remember months ago emailing Tim to say that I will not be blogging until the end of the year…then Dave emailed me and said Tim was moving on and that is when I started posting again.

    I stayed to the end of his last thread and it was providence that joni and Reb kept the spirit alive and I took it upon myself to try and get as many of the Blogocrats over here.

    Well, I did my best and it is time to concentrate on what I’m doing…it is so complex but I have garnered the support that will be there when I make my move…I am making inroads at a pace that has outrun myself and I need time to catch up.

    I remember having a conversation with a well known person and he said “why do you bother blogging?”

    My response was that I have more time for people that care enough about this nation to actually put their position across than the people that feign such…was not appreciated but that is my stance.

    I will be back by xmas…I just need to prioritise.

    I’ve been looking for a song to leave you with and the one I found is cutting close to the bone, but hey…I’m my biggest critic.


  40. Enjoy you time out Scape. Hoping you achieve all your goals and more.

  41. Dam bash-boy, everything really is about you isn’t it? Could be frightening in some circus’s (sp) yet I’m sure the clown thing helps take away some of the heat

    a joke Two cannibals are eating a clown, one says to the other- “Hey, does this taste funny to you?” 😀

    In keeping with your manhood… this move your going to make. Don’t share it with your mechanic, it will cost you more in the end

  42. scaper… | November 29, 2008 at 10:43 am
    The sand in this pit is very abrasive…enter at your own risk.

    Indeed you are a prophet.

  43. “The sand in this pit is very abrasive…enter at your own risk”

    A statement of intent perhaps?

  44. Evan @ 32. Then you’ve learnt nothing from the credit bust.

    Evan, you really have come up with the worst case scenario. I reckon that anybody who loses their job is well and truly cactus, not just the hyperthetical Lotto winner but the average Joe Blow.

    And if you think I’ve learnt nothing from the credit bust then I will happily say that you are quite ignorant.

  45. Miglo @23 – it is exactly this attitude that has bid up th eprice of housing to the point where is has been driven by speculation. The bubble has burst.

    People that bought houses to live in have lost equity because of the speculation that you promote.

  46. People that bought houses to live in have lost equity because of the speculation that you promote. (Tom).

    So there you have it folks: it’s all my fault.

    By your accounts Tom, I must be the antiChrist. You belittled me recently on Blogocrats over my choice of car; you hold people like me responsible for the economic crisis; and you regularly resort to childish name-calling to me (and others) for being Labor voters.

    All from the bloke who says he wants to be able to afford a Mercedes.

    It’s alright for you to want to accumulate wealth, but according to you it stinks to high hell if others want to as well.

    Right now, and from this point on, I’m not in the mood to listen to your self-righteous crap and I’m surprised at myself for even bothering to respond to your dribble.

    You said in a recent blog that you want to keep breeding.

    Please don’t.

  47. Well criticism of speculation hits a raw nerve.

    But no worries, I’ll buy a good second hand car from some short sighted speculator that has overcommitted himself with speculative greed. Someone that seeks the appearance of wealth, without owning anything. Wankers.

    Plenty of other bargains to pick up from them as well.

    That’s the difference between being prudent and being speculative.

    In the longer term, people that take security, live within their means, will manage to accumulate more, and finish way in front of the speculators.

    So we should.

    As for criticism of ALP voters, I don’t think my position is that simple. I’ve pointed out in the past that I was a member of the ALP for many years, I’ve never voted Liberal. I’m simply tired of the ALP structure, the mindless repetition of slogans, lack of intellect, political correctness. Luckily, I’m in good company, there are plenty of past and present ALP figures that share these opinions.

  48. “So there you have it folks: it’s all my fault.”

    The only people to blame here is us. I believe John, unlike a few of the regular posters, is able to see past blaming the Coalition in Australia or the Republican etc in the US. I tend to give most people more credit in assuming they didn’t all run out and spend like a bunch of sheep because “Howard” or “Bush” said so but because many went through the “I want it now” phenomena! Let’s call it what is folks, human nature. You have nobody but yourselves to blame if you were careless enough to max out your credit line for all that “stuff”. Sure, individually we can’t do much about the property market but many shouldn’t have been getting into it to begin with.


    Since you usually have a more balanced approach to this situation, I would be curious to get your opinion on the demands placed on Fannie to take on 50% of its portfolio with “bad loans” in some sort of “welfare” for those who would normally never be able to get them? It seems obvious to me that this factor, along with everybody maxing out their credit lines, is why we find ourselves here. Please, somebody explain to me why this is “Howards or Costello’s” fault? Sure, reckless to follow the US’s lead but what Australian government hasn’t, unfortunately?

  49. It is in a significant part Howard and Costello’s fault because from the moment they came into power they changed an emphasis on saving and frugal spending onto one of spend at all costs. First they bought in a new tax system that favoured spending and punished saving. They then began to implement policies of middle to upper class welfare with generous government handouts and tax breaks to them whilst demonising the less well off and lower wage earners, restricting handouts to them under new onerous policy rules, using the guise of cracking down on welfare fraud. They were much less worried about the wealthy rorting the welfare system, and in any case welfare fraud was only a very small fraction of the total, so this was nothing more than excuse.

    In one hit they pumped $50 billion into a FHOG that had the effect of rising house prices to the point of them becoming the most unaffordable in our history (and in the world), thus locking out huge swags of people from buying houses, thus raising demand and increasing house prices, but again a move that directly advantaged the wealthy. Look at any graph and though the wealth gap was growing before Howard it shot up exponentially under him, as it did under Bush who also implemented policies and taxes that overwhelmingly favoured the wealthy. This is a factor in our current crisis.

    During all this time Howard kept sending out messages that all was fantastic, people have never had it so good, prosperity would go on forever as long as his party was in power, high debt was not a problem but a sign of wealth and affluence, personal debt was not a bad thing, and he allowed the lending institutions to run rampant, baulking at doing something every time the institutions’ usurious lending practices were raised. He also ignored every warning he was given (a SOP with him) about a looming economic crisis yet he continued to encourage people to spend (“you’ve never had it so good”) and go into debt to the very end. All his last election promises and policies were about more middle and upper class welfare along with encouraging increased spending.

    Don’t you think if the government had encouraged savings, had bought in a tax system that favoured savings instead of spending and had heeded the many economic warnings and acted on them people would have ignored that and kept on spending anyway?

    The government’s aren’t blameless in this and it’s wrong to absolve them from any fault by shifting that onto the people.

  50. Well said Adrian.

  51. Further to that Howard’s spend at all cost policy, it is also the current opposition’s stance as Turnbull has criticised the government for not encouraging spending (before the crisis action), and said that his economic policy was to get people spending.

    Also Howard bought in the ability for some people to draw on their superannuation, a direct action to get those people to spend their future savings. He also allowed lending institutions to bring in instruments that provided the ability for young people to go into debt by drawing on their parents or grand parents equity, also putting them into debt.

  52. Adrian,

    “The government’s aren’t blameless in this and it’s wrong to absolve them from any fault by shifting that onto the people.”

    I agree Adrian, and I promise you it wasn’t my intention to absolve them. I am simply trying to understand the Australian perspective. In the States our spending habits seem to be similar but as a matter of policy not identical. I must admit, seems reckless as even GW and company were trying to put Fannie on notice. Why do you think Howard simply ignored the warnings the Bush administration was even putting out there? Seems rather destructive policy all around, rich or poor? Not challenging you on this just trying to get my hands around the “Australian experience”. However, in your opinion, to what extent does the average consumer have a responsibility if any?

  53. Sparta

    You’re right Sparta, when you view the big picture it’s hard to pin down the problem to simple causes for the major failures we are seeing, however, I think you’ll find that Howard and Costello were at the forefront of the cheer-leading squad here in Australia and more than once used ‘low interest rates and government debt reduction’ as a measure of their superior economic management credentials’, and that is what’s pissing most people off.

    Like many market fundamentalists around the globe ‘ Howard and Costello’, in my opinion, truly believed that a ‘new era of permanent prosperity’ had arrived. Howard and Costello, like many others got caught up in the euphoria and either forgot the fundamental economic realities always trump fantasy in the long-run, or they sincerely had no idea how the real world of economics works.

    As financier George Soros said: Communism sought to abolish the market mechanism and to impose collective control over all economic activities. Market fundamentalism seeks to abolish collective decision-making and to impose the supremacy of market values over all political and social values. Both extremes are wrong. We need to recognise that all human constructs are flawed. Perfection is beyond our reach. We must content ourselves with the second-best; an imperfect society that opens itself open to improvement. Global capitalism [the free market system] is badly in need of improvement.”

    You’ll also find a number of commentators are referring to this crisis as the ‘Minsky Moment’ based on the observations of economist Hyman Minsky who said in the 1980’s:

    “To be exact leadership does not seem to be aware that the normal functioning of our economy leads to financial trauma and crises, inflation, currency depreciations, unemployment and poverty, in the midst of what could be virtual universal affluence. In short, financially complex capitalism is inherently flawed.

    “Over a a protracted period of good times”, he observed, “capitalist economies tend to move from a structure dominated by hedge finance units to a structure in which there is a large weight to units engaged in speculative and Ponzi financing”

    Minsky would not attribute the crisis to “irrational exuberance” or “manias” or “bubbles.” Those who were caught up in the boom behaved “rationally,” at least according to the “model of the model” they had developed to guide their behavior. That model included the prospective course of asset prices, future income, behavior of policymakers, and ability to hedge risks or shift them onto others. It is only in retrospect that we can see the boom for what it was: mass delusion propagated in part by policymakers and those with vested interests.

    However, a large part of the blame must be laid
    on the relative stability experienced over the past couple of decades—the tranquility that made the boom possible also created fragility because,according to Minsky, stability is destabilizing.

    The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.

    It think it is far too simple to attribute the current crisis to a speculative boom in real estate, to excessive monetary ease, or even to lax supervision. The causes are complex and have developed over a very long period.As such, solutions will also be multifaceted, tentative,and contingent upon continued evolution of the financial system, with an eye to longer-term trends that have made the system much more prone to crisis, in my opinion..

  54. Sparta, I agree with you in that “human nature”, lack of self control & crumbling to consumerism plays a part in this. Ultimately, the individual will bear responsibilty for poor decisions & the “I want it now” mentality; especially those who have overextended themselves.
    However, I think the consumptive nature of modern society is stoked & cajoled by our governments in a very cynical & manipulative way. I fail to understand how perpetual “growth” is healthy or sustainable. They need the cattle to generate capital.
    Things need to change but I can’t fathom that they will be allowed to. Have we as a species reached some kind of population threshold beyond which good outcomes must slope away sharply? Too many people, too little planet? not enough genuine effort to understand eachother beyond the TV.

    On rereading what I just typed I think I need to go to bed now, it was a long night at work.

    What time is it in Phoenix BTW sparta?

  55. Adrian

    Some of the very passionate (as always) and insightful comments you’ve presented.

  56. And the solution certainly doesn’t lie in more deregulation or the complete removal of all regulation as Bush stated at the G20/Apec and for which there is a big push going on.

    There is a clear move to blame shift the crisis entirely onto government regulations and ordinary people with the intimation being that if the super greedy are allowed to reign (as long as there are always governments to bail them out) then the best course of action is to just deregulate the entire system and let it run free.

    The same tactics that were used by the tobacco lobby and are currently being used by the anti-Climate Change push are also being utilised by the complete deregulation push. As with the other two campaigns all the risks are taken by governments and the people with the anti’s not giving a stuff about the long term consequences as long as they are doing OK now.

  57. Sparta I find it incredulous that you are still blaming Joe Public for this mess.

    Yes some people overcommitted out of greed, but some had to rely on credit cards as interest rates went up, and they lost income through WorkChoices.

    The biggest criminals in all this IMO are the finance industry that demanded less and less regulation, and the Govts that complied.

    The banks also overcommitted, but luckily for them the Govts that aided and abetted them are more than happy to use taxpayers money to bail them out.

    How can extreme capitalism not be a failure when it relies on public money to keep it afloat?

    All this charity for the rich, but none for the ‘undeserving’ poor.

  58. Sparta to answer you average consumer question.

    They have always got a part, but this is a very well know part and can be modulated and manipulated, which is why we get the whole ad/promotions industry going down to psychological and minute demographic levels. Greed and the ‘Jone’s’ syndrome are known to the umpth degree, and can be just as much used to deter spending and greed as can government policy either encourage greed or stifle it.

    In Australia’s case we got a government that not only trashed any policy that encouraged savings and sensible frugality whilst still buying a cake every now and again, it went out of its way to aid and abet the have your cake at anytime you want and eat it at all costs ad/promotions industries, even spending hundreds of millions of tax payers money on promoting their spend policies, so boosting the message being put out there by others to consume now, it’s all good, greed is healthy, debt is good and there are no consequences.

    Sparta, we didn’t go from being an average in personal debt nation to becoming the number one in personal debt nation by the sheer coincidence of the arrival of a new government. It was because of the arrival of that new government.

    The UK then followed that model and then the US. Australia actually led the way on this, much to our shame and that of the previous government. Yet we have an opposition that espouses more of the same as the previous government, taking it even further.

  59. correction

    …as can government policy to either encourage greed or stifle it.

  60. “Sparta I find it incredulous that you are still blaming Joe Public for this mess.”

    Me too. But that’s Sparta for you. Unwavering in his blind support of Captain America and whoever happens to be President of the moment. Like so many Americans, believes all the BS that american citizens are fed by their own government and media.

    Blaming the financial crisis on all those other nation’s financial institutions that were gullible enough or somehow ‘intentionally complicit’ in buying the US’s bad debt.

    When the reality is, that those US institutions were nothing less than FRAUDULENT in the packaging and onselling of supposedly “sound Investments”.

    The worldwide economic meltdown was caused by the US – something that Sparta isn’t prepared to accept due to his blind allegiance to his home country. I mean, how could Captain America get it all so wrong? The answer is quite simple; greed, rampant consumerism, a thirst for power and determination to preserve the “American way of life.”

    All to be maintained at the expense of other nations.

    And then when the masquerade is exposed; simply blame all those other nations for being duped by the US.

    Bizzarly, Sparta suggests we should all just ‘look past’ America’s role in creating and perpetrating this worldwide catastrophe…

    Yeah. Right.

  61. Toiletboss,

    About 4:30 in the afternoon on a fine Sat. Going to bed, night shift man? Thanks for the comment!

  62. John,

    Agian, I don’t always agree with you on the Foriegn Policy debate but in regards to the economy, you knock it out of the park as always. Much appreciated.

  63. Adrian,

    “Sparta to answer you average consumer question.”

    Well humbly, I consider myself an “average consumer” but on that note I am baffled by the carelessness of my fellow countrymen? I will be the first to admit that I am not an authority on this matter but I managed to see it for what it was and not “step in it”. So it perplexes me that many, far more enlightened then I, managed to get so caught up in the hysteria without the need for bad policy, or double speak from politicians. I realize we can all be duped but on this scale? Government, rich or poor, individual’s etcetera, seems they all got this one wrong. Astonishing as hell!!!

  64. Sparta,

    Read what I said at comment #3.

  65. Tracie,

    “How can extreme capitalism not be a failure when it relies on public money to keep it afloat?”

    More like it relies on “human wants and needs”. Well perhaps it is just me but didn’t Smith actually push regulation as a necessity for capitalism to work or else it would fall victim to the very kind of situation we now find ourselves in? What we have now, it seems, is just pure greed. Simply, nobody was minding the store, consumer included! Hardly seems synonymous with capitalism as a functioning system. Trust me I have absolutely no love at all for the “Deregulate Everything” crowd! Likewise, can’t quite understand why many hardly mention the consumer in all this as well.

  66. Reb,

    Thanks for that reb, hope you got something out of it! Please try to have a better day.

  67. In the longer term, people that take security, live within their means, will manage to accumulate more, and finish way in front of the speculators. (Tom).

    That’s exactly what I’ve been doing Tom. If only you had asked.

  68. 64. Sparta Phoenix, AZ USA | November 30, 2008 at 10:39 am

    On the consumer side it was not all about greed at that level, but about trust. You may have had some insight above most mortals but as you said even experts and adept money managers fell.

    The reason is that the big US institutions were sold and marketed as sound, unbreakable and/or too big to break. The products they sold and dealt with were all supposed to be above board, well regulated and prudently managed, all nicely covered in complicated packaging that even the best in the world and government regulators had trouble understanding, so how could the consumer?

    Because of this most consumers in the world had no choice but to trust their financial advisers (for the few who had them), their banks advice and the government who supposedly regulated the finances or at the minimum oversaw the industry so it could warn the public of bad practices when they arose.

    When a government aids and abets the marketing of a shonky product (either directly because this is its ideology and/or indirectly because it is as ignorant as the public) then you have a recipe for an economic crisis.

  69. Adrian@69,

    Well said. That was what I was trying to say at 61, but you managed to do it more eloquently.

    If we get to the root of the problem, it was the fault of the US financial institutions that were deliberately engaging in fraudulent and misleading conduct when they repackaged bad debt as good debt with sound credit ratings.

  70. Reb, Adrian and Sparta

    Peter Schiff was incredibly insightful but nobody wanted to listen “This is not just a financial crisis its an major economic collapse”

    Watch this interview

  71. John,

    Phony economy, absolutely! I mentioned in my less than articulate post during Tim’s “win a book” blog something to that effect. Obama, GW etc, doesn’t matter how much taxpayer money is pumped in to try and prop it up a bit longer, it’s coming down!

  72. The UK then followed that model and then the US. Australia actually led the way on this, much to our shame and that of the previous government. Yet we have an opposition that espouses more of the same as the previous government, taking it even further.

    Adrian the obvious question is what will the Rudd Govt do to reverse this, if anything?

    Clearly a thrifty population and economic growth are incompatible. I daresay this is the reason for the shift in the first place.

    Given that Rudd is committed to economic growth, it would be illogical for him to encourage savings wouldn’t it?

  73. John/Adrian,

    Sorry to take so long to respond.

    I have no doubt that the housing bubble will eventually burst. Prices are too damn unrealistically high, and have been for a few years now.

    When the bubble bursts how will it effect me? Very little I hope. I have substantial equity in all my investment properties and I intend keeping that equity intact. I didn’t race out and use that equity for a new car, overseas holiday or a plasma.

    If my houses prices do drop then it’s only a problem for me if I intend to sell those properties, which I don’t intend to. Even if they drop 40% it won’t effect the rent I’m receiving from them. The rent will still be the same next week as it was last week.

    I’m one of those people that don’t look for problems, but solutions. If I had have used the equity to produce bad debt, then yes, I would have a problem.

    But I don’t take risks.

  74. Miglo

    I have no doubt that you’ve assessed the risks and invested sensibly Migs. However, you’d now be in that unique class of ‘minority’ who knew what they were doing and covered themselves.

    Sound investing is about realistically understanding the downside (by factoring a margin of safety) whilst looking for opportunities to capitalise on the upside, in my opinion. You seem to have done that quite well.

  75. Thanks John. Safety and luck. At my age I can’t afford to take risks.

    Gosh, I don’t even buy green bananas anymore.

  76. What we have now, it seems, is just pure greed. Simply, nobody was minding the store, consumer included! Hardly seems synonymous with capitalism as a functioning system. Trust me I have absolutely no love at all for the “Deregulate Everything” crowd! Likewise, can’t quite understand why many hardly mention the consumer in all this as well.

    Like I explained before Sparta, because of the power inbalance between corporations & Govt opposed to consumers.

    These days it would be fair to say that corporations have more power than Govts, especially when FTA’s come into play. Corporations also have an excessive amount of control over print and TV media via the vast amounts spent on advertising.

    Just as communist propaganda was said to brainwash its citizens, the same is also true of capitalism’s equivalent.

    In other words, social engineering.

    Then again there were others who have been falling behind for years due to stagnant or minimal wages. Some have increasingly used credit cards to pay the ever increasing demands on limited or insufficient incomes.

    Lateline: US debates causes of ‘working poor’

    MARK SIMKIN: In the United States if a family of four earns less than $19,000 a year, it’s officially living in poverty. Nearly 40 million people meet that criteria.

    JARED BERNSTEIN: If you look at any American city and the amount of income you need for decent and safe housing, to pay for child care if you’re a working family – and I should say safe child care – a place where you would feel comfortable leaving your kids, health care, if you want to save a little for college costs here, which have been going off the charts lately, you really need something like twice that poverty threshold. You really need income in the range of $30,000-$35,000 in order to make ends meet in a way I would recognise as safe and reliable.

    MARK SIMKIN: Few of these officially poor men and women are homeless; many of them have jobs. Around one-third of America’s poor are working full-time.

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