Economy XX

As we reach our twentieth thread on the economy, it seems that the good money (?) is on the RBA reducing the interest rates by 1%. Now what was it that Howard kept saying about interest rates?

In a local paper here I read an interesting comment on the fact that the GFC seems not to be affecting the average person as much as the rich. It is because they (the rich) have lost so much on-paper money which is affecting them, whereas the most of us do not have that much in investments – all of our money is debt.

Is that why Malcolm is so upset with the governments bank guarantee? Because it is not helping his asset base?

So, blogocrats, what are your thoughts on what is happening?

joni

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38 Responses

  1. Malcolm Turdball is always going to be upset. The only way the economy is going to get back on the straight and narrow in his view is for the Government to have everything rubber stamped by him. Will someone please tell the idiot that they actually lost the last election and that Kevin is the boss cocky now. His response to everything on the economy is quite bewildering, I don’t think he even knows what he stands for. He has done more backflips than an Olympic diver. As for the cut in rates by 1%, I personally I think it’s the right move, but unless it is suported by some other confidence building announcements, it might not be the way to go. Perhaps a little less now and when there is a little more confidence, then give it the big kick start, I think that would maximise any rate cut.

  2. david,

    Q. What is the similarity between Wall St and the Olympics?

    A. Synchronised diving.

  3. Just on Sky..thousands of architects to be laid off.

  4. “It is because they (the rich) have lost so much on-paper money which is affecting them, whereas the most of us do not have that much in investments – all of our money is debt.”

    True. However it also extends beyond this. Many people are actually geared up to the hilt – haven taken out loans based on equity in their primary dwelling, and used this equity to invest in shares or investment property. These shares are now worth 50% of their value compared to 12 months ago.

    This means there are many people (not just the wealthy, but especially so) who are dramatically affected by the falling prices of property and shares and their ability to service the loans they used to acquire them.

    Worse still, is the situation of people who used the value of those shares they bought 12 months ago (on credit), to buy even more shares!

    These people are in a seriously f**ked financial situation. It’s all very well for the likes of Scaper, to lay blame on these people saying it’s all their own fault.

    However it was a legitimate form of lending that was encouraged by the Banks and championed by “financial experts” as sound investment strategies. And I’m not talking about charlatan Financial Advisers, these were recommended strategies by all the major banks, financial institutions and regulated Financial Planners.

    This is why we are now seeing many people in traditionally wealthy suburbs under severe mortgage stress, with property prices plummeting. Many people from all walks of life are going to the wall in record numbers.

  5. Reb. Hubby’s super (hub is 60yrs) lost over $500 between Saturday and today. We are thinking that salary sacrifice isn’t such a good idea.

  6. Min,

    If hubby is still working, salary sacrifice is still ok (as a way to minimise tax) however you’d want to make sure future contributions are going into some fairly conservative choices, like cash.

  7. Min,

    On the other hand, if you have a mortage, you migt want to focus on making extra repayments to that, rather than salary sacrifice to super. That’s what me and the other arf are doing.

    Although I’m still throwing my compulsory super contributions into the high risk, high growth option, on the basis that we are pretty much at the bottom of the market (or very close to it) so when it rallies, I will (hopefully) see strong growth.

    But I have another 20 years before retirement, so can afford to take the risk. I wouldn’t recommend it for people who are planning to retire in the next 5 years or so.

  8. Thankyou Reb. I think that we’ll be throwing everything into the house because at least we’ll have a roof over our heads. Hubby will work until he drops but I wouldn’t want him to have to do this. Just the $500 lost in the last couple of days is a lot money for us.

  9. reb

    Same here – i have not even looked at my super for about 4mths. Firstly, I do not want to see how much I have lost. Secondly, I have over 20 years till retirement so there is no point for me worrying about the balance. As long as I still have the units, the unit price should still recover.

  10. joni,

    …the real losses are only just kicking in – next year will be a horror for most of us…sorry to gloom and doom…but its like watching a runaway train…even though its coming, we can’t stop it…what’s worse is that I know some of the people on the train and I know that they will be badly hurt…ordinary, good folk…

    …as I have said before, at the moment its a bit like the “phoney war” in England, before the Battle of Britain erupted – everything went on as normal and then all hell broke loose…(too young to be there but I’m a fan of military/political history…and boy, doesn’t it repeat itself!) …

    …don’t be surprised in the next decade or two to hear historians and economists saying this was the world’s worst economic crisis…not the same as The Great Depression but I suspect (no-one really knows) worse in its own way…

    …you could always ask the world’s greatest treasurer for his opinion…although he does seem a bit quiet these days…

  11. Min

    Own your home first, absolutely agree.

    Sympathies, re losses! I remember The Minister and I putting $40000 in Suncorp Super, between us, in 2000, lost the lot…took about 18 months to break even again!

    joni, is right, the units will recover…

  12. TB

    I agree that things will get worse. Next year is not going to pleasant.

    However the share market always rallies first. It is the first indicator that things are starting to improve, however people are (rightly so) sceptical for the first 12mths. However historically, when the market rallies, the biggest gains are usually in the first 24months.

    I sure as hell would be using any ‘disposable’ income to invest in shares when I have a mortgage to focus on instead, but as far as my ‘complusory’ contributions go, I may aswell take a punt on the high risk high growth option, as people who stick to “cash” typically miss out on the rally.

    But yes, the world’s greatest treasurer is suspiciously quiet…

  13. TB,

    $40,000? That hurts.

    My super has lost $30,000 in the last 12 months, so I know how you feel….

  14. that was a cheery distraction joni.

    🙂

  15. to be a pessimist here reb, you have probably lost more than that as your contributions have been propping that up

  16. That’s very true joni. That figure doesn’t take into account the amount I’ve been throwing into super over the last 12 months.

    Jesus, Mary & Joseph!

  17. or Judge Judy and executioner

  18. Don’t worry TB, reb. Costello still likes to get his name in the papers.

    Last Friday he dribbled that a budget defecit would snap the confidence of hard working Australians.

    Funny, isn’t it, that the opinions of the world’s greatest economists run opposite to the world’s greatest Treasurer?

  19. …isn’t that an oxymoron, Miglo? Great economist?

  20. “are going into some fairly conservative choices, like cash”

    IMHO, that’s exactly the wrong advice. For example, BHP was down to $22 and is now at $30 ( all approximate figures). The Commonwealth Bank has also rebounded. And I could name many, many more great (partial) recoveries.

    Do I think it’s on the way back? No! The US economy is only in the second quarter of a predicted 4 quarter recession. The economy and the share market has some downside to go. And maybe we will all be rooned in the sense that it will never come back. It would be the first time in history, but anything is possible.

    But as reb has pointed out, the share market is always based on what the future seems to be not what the present economic circumstances are. The share market is a predictor of the future: always in the lead.

    If the share market doesn’t come back in the next year or so, then the world will change fairly dramatically. Take China as an example. Anyone who has been there and has spoken to the locals quickly realises that the ‘aspirations’ (to use a Rodent term) are through the roof. Wander off the beaten track, and there is political activity aplenty. Protests and the like. Never reported in the media but protest is alive and well.

    In China, there is no democratic release valve. If the leaders don’t deliver, then their prospects are poor, to put it mildly. That’s why the Chinese leaders will do all that it takes to ensure economic expansion. In the US we will soon have Obama. A totally new approach.

    There are current and future forces in play that will drive a new bull market but that won’t happen in the short term. Things will get worse but the share market has been oversold. The time to put your money into cash has passed. By about a year and a half. Now is not the time to be conservative.

    Even as a retiree, I believe there are good opportunities. All I have to do is convince the other half. We have dropped hundreds of thousands over the last year or so, but it’s a paper loss. Been there and done that at the turn of the century.

    B;logocrats – be brave! On the balance of probabilities, buy now or at least by May next year when things are likely to be worse.

  21. Pick up fire sale assets from speculators and status seeking wankers that are selling under pressure. Grab their assets, rub their noses in it, feel good about it!!

  22. This cartoon just about says it all:

    http://www.doonesbury.com/strip/dailydose/index.html

    But you have to understand what the Duke and his son Earl are all about.

  23. Nature 5

    The cartoon does say it all.

    Qantas lays off more staff. If their average salary is $40,000 per year then Dixons $12,000,000 hand shake could have kept 300 of them employed to service their customers for 12 months. or 150 for 2 years. It is all skewed so badly with top bosses no longer caring about anyone but themselves. Keeping staff em ployed and sacrificing some of their outrageous salaries would be good for shareholders, staff and the whole economy, but that comes to nought when we can suck the blood out of a company through bonuses and short term gains and then run like a hyena when things take a turn for the worse.

  24. How about for every person that the executives lay off, their remuneration drops by the sacked persons salary?

  25. Having said that @24 I am not doom and gloom for the future.

    Although my super has lost $119,345 so far it is irrelevant to my life at the moment.

    What is relevant is that Interest Rates have dropped and look like dropping further. Petrol has reduced dramatically. Inflation is now at 3% and specials are being thrown around by retailers.

    My cost of living has reduced and even flights for people who can afford to take a holiday are coming down.

    Unless you have lost your job ( and I feel for those that have ) why is everyone walking around with the glums.

    Cheer up and look at the positives instead of predicting the end of our civilisation as we know it.

    As Caroline on Mix F M said this morning the average person with an average home loan after the rate drops and petrol price reductions is around $700 better off than 8 months ago and will receive $1,000 per child in the next week or so ( whether you agree with this handout is not the point).

  26. Shane, I think you’ll find that teh average employee at Qantas are paid considerablely more than $40,000 per year. Probably double at least.

  27. joni @25

    Completely agree. Until executives salaries are once again tied to the slaries of the real income earners ( their employees) and the LONG TERM performance of company,this type of disgraceful greed will continue.

  28. Tom

    I think you will find that if you exclude the Board and upper management, the average income would be $40,000. Don’t forget to include Jetstar staff as they are wholly owned by Qantas and most of them are on a few hours a day ( for example the baggage handlers at airports outside capital cities). I think you will find that I am quite generous in $40,000.

  29. Shane, the only price that seems to be going down around here is fuel – right now, 95.9 cents, down the road according to MotorMouth (always accurate) and OPEC is talking about reducing production to get the price per barrel up to at least $100 again…

    …love this headline “Wall St slumps on recession news” (Dow Jones down 679.95 – 8%) News is USA has been in recession for a year…surprise, surprise, surprise!

    What planet do these boofheads live on?

  30. Pick up fire sale assets from speculators and status seeking wankers that are selling under pressure. Grab their assets, rub their noses in it, feel good about it!!

    I keep seeing this meme and, imho, it’s a partiularly dangerous and short-sighted one.

    I’d be suggesting that over-extension, failure, and creative destruction are vital components of a progressive political economy, and that part of the sadness I feel for what has been lost in the credit crunch is precisely that appetite for risk, and credit to sustain it, and the many fruits that will now wither on the vine, even as some vines are not even planted. That’s just one of the problems with crashes and crunches; they destroy good things that the ‘dreamers’ had a good shot at bringing to fruition for a collective social dividend, given that it’s the venture-stage startups and smallcaps that will cop it in the neck, first.

    Just a roundabout way of saying that Tom’s normatives and gleeful hand-rubbing at the prospect of discount goodies are as short- or long-sighted as anything else that gave rise to crunch.

    If you’ve been paying attention, you’ll have noticed that ‘consolidation’ is afoot (think pronouncements by CEOs of companies like Woolworths outlining why the ACCC should back off as they augment market(s)-share dominance by snaffling up the distressed assets of others; other predators with war chests, again, will buy up credit-starved start-ups and their intellectual properties, and simply shelve competitive substitutes to existing technologies, or maybe those new technologies are simply lost forever, if those companies proceed to bankruptcy and no-one capitalises on their ‘risky’ ideas again).

    Every which way, society will be paying for the credit crunch for years to come, and simply pronouncing that some are morally worthy of asset-stripping cannibalisation, even as the home economic and business environments have changed, through no particular fault of their own, isn’t a sound basis for analysis, unless one is buying into the naive ‘politics of greed’ doing the rounds, lately.

  31. TB

    What has gone up ?

  32. 32. Shane

    Food (check out Coles and Woolies)

    …and MY WT!

    Legion- well said…

  33. TB

    I agree food has increased however the savings from Inetrest rate decreases and the petrol drop have far outweighed the food increases, in my home anyway.

    I just think everyone is becoming gloom and doom and I really see no point.

  34. Shane, we are self funded retirees and own our home – drops in interest rates hurt our income I’m afraid…

    …everyone has different circumstances…eg my kids have mortgages…

    …I’d love to be upbeat…but the truth is the truth…pointless avoiding it…accepting it allows people to plan rather than get into more trouble…

  35. Pick up fire sale assets from speculators and status seeking wankers that are selling under pressure. Grab their assets, rub their noses in it, feel good about it!! (Tom).

    Tom, I’ll make sure I do, but I won’t be rubbing their noses in it. I’m not the nasty type.

  36. I see this in the SMH:

    Fixed interest investment specialist FIIG Securities Ltd has called on the central bank to cut official interest rates by up to two per cent, to avoid an “economic train wreck” in Australia.

    So – how big is this cut going to be at 1430?

  37. joni

    I have seen predictions of 1.50% lately.

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