Oi! – what about the economy?

In all the shenanigans over Utegate, we tend to forget that the economy is on life support and actually needs the attention of all of the people who can help (or are supposed to help). Yep- those in Canberra.

Interest Rates

Some think the next movement will be up, some think that the next movement will be down. But even if the next movement is down ā€“ will the banks pass the cut on? We saw what CommBank did a few weeks ago. But in their defence, all they did was make a change to move their margin back into a range similar to the other three.

Credit Cards

As news that credit card balances are finally falling, we have stories that the interest rates are now higher than they were two years ago.

Stamp Duty

And finally, there are reports that stamp duty for housing loans could be abolished under the Henry review.

So while the bozos are going on and on about Utegate – who is looking after the steering wheel for the economy?

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32 Responses

  1. It’s worth repeating “government debt aside for a moment: my central view is that our economy (with its high level of personal debt and low savings) is extremely fragile, especially when it comes to consumer spending and investment. Triggers such as increasing interest rates, unemployment, or increased fuel prices often can act in isolation or in combination to trigger major shifts in consumer spending as well as asset price and debt deflations (i.e. an avalanche of personal and business bankruptcies claims and/ or property foreclosures – the consequences of which could see a drastic fall in housing prices). In other words, the property market is teetering on the edge. And yes, we have a Housing Affordability Crisis 2009 ”

    It would be easy to disregard Dent as a crackpot, however, his analysis is firmly grounded and the cracks are becoming clearer, in my opinion.

    There’s worse to come for the economy
    http://www.news.com.au/dailytelegraph/story/0,22049,25666899-5014099,00.html
    By Fleur Leyden

    June 21, 2009 12:01am

    AUSTRALIA’S sharemarket will halve in value, house prices will slump as much as 40 per cent and unemployment will climb to 10 per cent.
    That’s the bold prediction from economic forecaster Harry Dent, who says a bigger crash is ahead for the global economy within the next two years.

    And while Australia’s strong financial system, links to China and young working population have cushioned the nation from the economic turmoil so far, Mr Dent says smart investors are cashing up in preparation for “the Mother of all depressions”, The Sunday Mail reports.

    “When you have to deleverage a major bubble in stocks and housing and commodities … it doesn’t just get over with in one year with a nice stimulus program,” he says.

    Mr Dent, who predicted Japan’s 1990s recession and the present economic crisis, yesterday began an Australian speaking tour in Brisbane.

    Our problem isn’t one primarily of liquidity it’s more to do with solvency. Too much debt – and no amount of government stimulus can ever hope to make this problem magically disappear overnight. As an example:

    70,000 insolvent Aussie firms: report
    http://www.news.com.au/dailytelegraph/story/0,22049,25669614-5014099,00.html

    * Many companiers are struggling at the moment
    * Consumers should look for warning signs
    * Small firms: Upbeat despite the crisis

    A NATIONAL debt recovery agency has estimated there are 70,000 insolvent companies still trading in the midst of the current economic crisis.

  2. John – this thread was prompted by your email this morning šŸ˜‰

  3. This mess has not even hit us yet and the government has blown their kick before it was really needed.

  4. Thanks Joni – can you believe the opposition’s focus on Utegate? I swear, Mal needs a good slap across the head to get his mind back onto issues that really matter to people.

  5. scaper…, on June 22nd, 2009 at 11:56 am Said:

    This mess has not even hit us yet and the government has blown their kick before it was really needed.

    I think we’ve got a few kicks left yet. Government debt is nowhere near that of private debt (over the trillion dollar mark).

  6. That’s the problem with Australia politics, they concentrate on the minute, unimportant issues to divert the attention on more pertinent issues.

  7. John

    And when Turnbull first raised Utegate, the Swan and Rudd both said that this was the day that the opposition ran up “white flag” on debating the economy.

  8. And the government wants to bring in an ETS…Slap to the government!

  9. So scaper another one of your defer it until it becomes an absolute disaster suggestions.

    Is that your solution to it all, GFC, GW etc, have the government procrastinate so it becomes the next generations problem? Keating failed not because what he did was wrong, the improving economy he handed to Howard disproves that, but that he acted too slowly in doing it. He procrastinated even knowing what had to be done, but he was hamstrung by an opposition blocking him most of the way as well, and guess what’s happening today?

    This is also laughable because when this government was barely three months old there were lots of calls it wasn’t doing anything and it was procrastinating too much, now it’s because it’s doing too much too quickly.

    As I keep saying this government is on a hiding to nowhere. It loses if it does something, does a little, does a lot and it loses if it does nothing.

  10. “It would be easy to disregard Dent as a crackpot………”

    Yeh it would be ………..but that’s because he is !

    He comes out and makes bold predictions and then continually “fine tunes”/changes the predictions over any number of years until he is almost inevitably correct.

    So watch over the next 3 years as his 40% drop in house prices is revised progressively downward to 30% then 25% then 15% then to 10% and hey presto he’ll get it right eventually and then claim his prediction was correct.

    Just in time to sell yet another book. Anybody can do that. Even Professor Keen has lowered his unemployment forecast.

    The guy has no economic cred and is simply a chartist who knows how to sell his books with bold titles and predictions.

    As usual bad news sells !

  11. You would make a good working dog…so faithful!

  12. Walrus

    Interesting times. I’m seeing cracks all over the place , maybe I’m cracking up as well (wink). Not sure of Dent’s background.

  13. Brian Johnson’s spot on, in my opinion. And there’s a lot of bad debts to be unwound – especially in the housing and small business sectors.

    Veteran analyst sees more bank pain
    VETERAN banking analyst Brian Johnson has warned of more bloodletting in Australia’s banking sector. He recommends investors go underweight in banking stocks as loan defaults begin to climb.

    Mr Johnson, an analyst at CLSA, says that for the first time in 17 years, Australia is facing a loan loss cycle, where growth in bad debts outpaces growth in lending.

    In a markedly bearish 200-page report, Mr Johnson has slapped price targets on the four major banks that are dramatically lower than their current trading levels.

    Commonwealth Bank of Australia is especially vulnerable, Mr Johnson said, and he’s given it a sell rating with a $27.44 price target versus its latest trade of $38.32.

    “Having largely avoided the pitfalls associated with securitization assets that have plagued global institutions, Australian banks are now facing their first loan-loss cycle since 1992,” said Mr Johnson.

    Mr Johnson said real asset values were falling and bad loans were rising as highly geared households and businesses unwound their debt.

  14. Scaper

    Petrol to increase (+cost of goods and services??), unemployment set to keep rising, that leaves interest rates.

    Then again, if supply lacks demand prices of goods and services may also fall. I don’t think inflation is going to be a problem, so therefore, we’re likely to see further cuts to the official interest rates – then again, banks are likely to up rates – damn, I’m getting a headache thinking about it.

  15. Interesting..the email has been confirmed by the Federal Police as being a fake and now the Opposition will vote down an ETS.

    Well, not interesting..pathetic is a better description.

  16. If the intrest fall any further the equity stocks will be double in value. Its a chance worth taking.

  17. krsnakhandelwal,

    You’d think that to be the case when taking a traditional perspective, however, these interest rate cuts are not because the economy is in great shape, it’s because the RBA and Federal Government are desperate to keep the economy from going into a deflationary spiral.

    The US market dropped 200 points overnight simply because the global economic news points to deteriorating conditions worldwide.

    Take your chances, but also be aware that the market may have some way to go before it bottoms out.

  18. How much has this fiasco cost us?

    How many hours have Rudd, Swan and Turnbull spent working on this issue?
    How many hours have their personal staff, various senators, IT staff and treasury staff dedicated to it?
    How many hours have the Australian Federal Police put in since they were asked to investigate it?

    Turnbull should be apologising to all Australians for the enormous waste of time and money this stupid diversion has cost at a time when we really cannot afford to be wasting either.

  19. Jane

    It is a pathetic joke, I’ve got to agree.

  20. Question Time is a sham…stockmarket not performing well today.

  21. Scaper

    Not performing well? It dropped 3% that’s verging on ‘crash’

  22. John, I’m trying to be positive here…crude has dropped too.

  23. John and scaper

    In current times, a 3% drop does not even make the news anymore! It’s a piffling movement šŸ˜€

  24. I know Joni, 2 years ago it would have made headlines.

  25. Same goes for billions…we seem to have been conditioned.

  26. JMc – the first of two or three DCB before we are settled again … I suspect

    … The Minister and I discussed dipping back into a balanced fund last week and decided it was too early …

    Have you been watching the series called The Ascent of Money ABC (I think) Thursdays?

  27. Adrian,

    As I keep saying this government is on a hiding to nowhere.

    Yes. Yes you do.

  28. I’ve been keeping an eye on my industry.

    It is a flood or famine situation at the moment instead of constant rain.

  29. Hold on! The Australian have the headline:

    Shares plunge on World Bank gloom

    Allison Jackson | 4:20pm SHARES had their biggest one-day fall in six weeks today after the World Bank ignited a sell-off in equity and commodity markets.

  30. I note that Kevin R’s been reading my comments lately. Curious word ‘fragile’ keeps popping up. Shame he’s referring to the global economy in general and I keep referring to our very own ‘debt laden’ (private not government) economy.

  31. Oi tiny brains, jest leave the economic management to us super stars of management, OK? I mean, look at our record, look at the bloomin record of excellent deliverables, us masters of the universe have got the business of bucks all sussed out, OK?

    Yers jest keep dutifully squabblin amongst yerselves about the circus act until someone important tells yers otherwise, OK?

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