It's the economy, stupid!

 
  don_dunstan Minister for Railways

Location: Adelaide proud
I thought it may have been time for a new thread about the general state of the economy rather than one with a title that suggests we're all waiting for GFC II... So I borrowed Bill Clinton's famous line from the 1992 presidential election.

I'd like to open with this interesting ABC News story about the options the Reserve is currently considering to get our currency down considering it continues to rise on the back of recently improving commodities prices (well... they've recovered a bit from their recent very low prices anyway). Saul Eslake says that he anticipates the Reserve may have to embark on more rate cuts before the years end.

I must say I agree. At the risk of firing up the white-hot Sydney and Melbourne residential property markets I think cutting interest rates further might be their only realistic option given many of our major trading partners have zero or near-zero interest rates themselves.

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  RTT_Rules Dr Beeching

Location: Dubai UAE


There are other ways to deal with housing prices to prevent them going further higher, so yes anything that keeps the dollar down to 70c is the right thing.
  YM-Mundrabilla Minister for Railways

Location: Mundrabilla but I'd rather be in Narvik
Even if it means the self-funded retirees starve.

Has anyone actually contributed to the attempts to stir the economy other than the unemployed, retirees, pensioners and those workers trying to save for their retirement after everyone has been screwed out of their pension?
  don_dunstan Minister for Railways

Location: Adelaide proud
I hear what you're saying but I'm not sure if the alternatives to cutting interest rates are politically palatable - for example, restricting capital inflows would simply not be allowed because it's anti free-market thinking and it would diverge too far from the current thinking that completely unfettered movements are essential. Our former Goldman-Sachs Prime Minister would be extremely unlikely to employ any kind of tactic like this.

The problem is (as discussed before on other threads) we're seen as an extremely safe haven for money internationally because of our history of stability and security, our very strong rule of law and our overall desirability as an investment. Conversely these factors are starting to kill of the very things that make us so desirable - namely the fact that industry and business are having a hard time competing with much lower cost neighbours in many areas.

I don't necessarily think that cutting interest rates is the best thing to do but something has to be done to keep downward pressure on the AU$ or next thing it will be US$0.80+ again... it's going to kill the green shoots of our export revival if we let it keep appreciating. It's unfortunate that self-funded retirees will suffer as a result but no solution is ever going to be perfect, there's always going to be someone who loses out.
  don_dunstan Minister for Railways

Location: Adelaide proud
The Aussie $ breaks US$0.74 and the stock-market goes wild for Fortescue on the back of increasing iron ore prices. I think the exuberance is a bit premature - there were figures out of China today suggesting the slowest economic growth in 25 years and further European Union action against Chinese steel makers dumping cheap product overseas.

Meanwhile Ian Verrender (ABC News) wrote an interesting article about sagging wages in Australia and how it's having all sorts of unintended consequences.
  don_dunstan Minister for Railways

Location: Adelaide proud
It's always interesting to read what Australia's super-wealthy have to say about the Aussie economy.
Australia's richest developer, Harry Triguboff (for example) has been talking his book recently with pronouncements that -

  • Investors should stick with putting money into apartments (his apartments?) as the stock market was not a wise place to put money at the moment: AFR 14/12/2015.
  • That governments should not change current very generous Capital Gains Tax arrangements on residential property as this would frighten investors away (from buying his apartments?) The Australian 17/2/2016.
  • That Australians should be allowed to use their superannuation funds to get into residential property (his residential property?) because otherwise they might never be able to buy. AFR 26/2/2016.
  • And most recently... that the government should not be putting "red tape" in the way of foreigners from buying as many Australian residential properties as they liked because it was lessening demand for apartments (his apartments?). The Australian 4/3/2016.
Sorry, Harry, but your naked self interest is pretty obvious - that Aussies should be using their superannuation to get into property so they can continue to line your pockets is particularly galling. Here's some free advice: if they're not selling as well as they used to then perhaps you need to build apartments that are more affordable? Just a thought.
  Graham4405 Minister for Railways

Location: Dalby Qld
I received the annual valuation notice for my residential property in the mail today. The UCV has fallen by approx 10%. I bet my rates don't fall by 10%!
  YM-Mundrabilla Minister for Railways

Location: Mundrabilla but I'd rather be in Narvik
'Sorry, Harry, but your naked self interest is pretty obvious - that Aussies should be using their superannuation to get into property so they can continue to line your pockets is particularly galling. Here's some free advice: if they're not selling as well as they used to then perhaps you need to build apartments that are more affordable? Just a thought.'
Bit like the car industry perhaps?
If they built affordable cars/apartments to designs and standards that people wanted at reasonable costs they would perhaps sell more of them.
Greed, pure and simple! Sad
  2353 Chief Train Controller

Location: Brisvegas
I received the annual valuation notice for my residential property in the mail today. The UCV has fallen by approx 10%. I bet my rates don't fall by 10%!
Graham4405
Mine stayed the same (after a 23% increase last year).  Thankfully they average the valuation in Brisvegas across three years when determining rates.

You're right, your rates won't go down 10%, just like mine didn't go up by 23%.
  Graham4405 Minister for Railways

Location: Dalby Qld
I received the annual valuation notice for my residential property in the mail today. The UCV has fallen by approx 10%. I bet my rates don't fall by 10%!
Mine stayed the same (after a 23% increase last year).  Thankfully they average the valuation in Brisvegas across three years when determining rates.

You're right, your rates won't go down 10%, just like mine didn't go up by 23%.
2353
Actually, as a former Council employee, I do know how it works. In short Council determines how much rate revenue is needed and that is apportioned across the board with valuation being one of the variables, so no my rates won't go down by 10%! Wink
  don_dunstan Minister for Railways

Location: Adelaide proud
There's an incredible rally happening at the moment, not only on the ASX but also on certain commodities including iron ore (back over US$60 presently). It's not consistently across the board though and you have to wonder how sustainable it is -
  don_dunstan Minister for Railways

Location: Adelaide proud
Actually, as a former Council employee, I do know how it works. In short Council determines how much rate revenue is needed and that is apportioned across the board with valuation being one of the variables, so no my rates won't go down by 10%! Wink
Graham4405
Because they've probably already spent that money...!
  don_dunstan Minister for Railways

Location: Adelaide proud
550 Queensland Nickel workers likely to lose their jobs tomorrow at Clive Palmer's Townsville plant (ABC). One of the workers spoken to by the media said that he blamed Clive personally, saying that the plant had been progressively run down since he bought it.
  RTT_Rules Dr Beeching

Location: Dubai UAE
550 Queensland Nickel workers likely to lose their jobs tomorrow at Clive Palmer's Townsville plant (ABC). One of the workers spoken to by the media said that he blamed Clive personally, saying that the plant had been progressively run down since he bought it.
don_dunstan
And again we hear another story of entitlements may not be paid out or reduced. How does this happen in this day and age? This is not some small business with a few people, this is a major company and one of the larger single site employers in the country. Surely the directors needs to be dragged before the courts for trading while insolvent?

Perhaps its time that the ATO makes it mandatory to set up trust accounts for each business that must pay entitlements along with Income tax and the company can pull back only when the employ takes leave etc. Or rather just increase the penalty for those running such companies that fail to make provisions.
  RTT_Rules Dr Beeching

Location: Dubai UAE
WA in financial woes, hahaha.

I am currently booking accommodation and car hire around the country and Perth suburban area 3-5km from the Airport is only marginally cheaper than Sydney CBD for family of 4. I'm talking 10-15% cheaper.

As for hire car, in Sydney I can hire a car 24hr a day and the airport isn't even open for 7hr a night. In Perth when numerous international and domestic flights arrive/depart in the wee hours including mine. The response from the car hire company (s), pick it up the day before, the morning after (after 6am) or at your destination. Yes I did tell them my plane arrives at 2am and yes I did tell them that I wanted the car to immediately drive for 6hr east to a small town on the coast. No pickup box for the keys option!!!
  don_dunstan Minister for Railways

Location: Adelaide proud
And again we hear another story of entitlements may not be paid out or reduced.
RTT_Rules
This Queensland Nickel thing has descended into high farce since last Friday; it turns out (from what I've read) that Clive actually does have the permits to keep the plant going but has no raw product, no credit and no way to keep paying the workers - but perhaps he'll have enough money in three or four months to re-open it again. I think there's a considerable amount of anger towards Clive in Townsville right now.

RE: Western Australia. I have good friends who have lived there for many years and they tell me the number of empty shops and offices is unprecedented, particularly in West Perth. Anecdotally there's also a lot of people leaving the West to go back to the eastern states or overseas. However if you listen to the WA government then everything is blue skies, Elizabeth Quay going gangbusters, construction and development everywhere around Perth; any negative indicators just a temporary bump in the road... and look at the price of iron ore, there's certainly a recovery under-way.

Who do you believe?
  locojoe67 Assistant Commissioner

Location: Gen X purgatory/urban Joh-land
Perth suburban area 3-5km from the Airport is only marginally cheaper than Sydney CBD for family of 4. I'm talking 10-15% cheaper

In economic terms, regulated markets mean price signals are neither accurate nor timely.

In other words, the fact that Perth prices are comparable to Sydney is neither here nor there. The mining boom resulted in many marginal businesses opening that survived on high prices due to artificially stoked demand exceeding supply for their products. When the demand weakens, businesses that fail to adjust to the new reality by adjusting pricing accordingly will go bust.

Anecdotally there's also a lot of people leaving the West

Behaviour is more important that what is said.

However if you listen to the WA government

Of course they would say that. Like any business owner talking up prospects.

Who do you believe?

Certainly not the mainstream keynesians.
  don_dunstan Minister for Railways

Location: Adelaide proud
The slowing population growth anecdote seems to be supported by official figures - although if you listen to the Real Estate Institute of WA all that means is that now is the perfect opportunity to buy a home, especially if you are first home-buyer. I guess they do have a point - if you have been priced out of the market due to the boom then a softer market might be your best chance.
  don_dunstan Minister for Railways

Location: Adelaide proud
Sydney's McGrath Real Estate (MEA) closes at $1.22 today, down 42% since the float only 4 months ago. I think there could be a class action in the near future!
  don_dunstan Minister for Railways

Location: Adelaide proud
The US Federal Reserve has been decidedly spooked by the consequences of their decision to raise interest rates by 0.25% late last year - so they won't be doing that again any time soon (ABC News) despite Janet Yellen telling us that there would be several more on the way. So the Aussie dollar soars to nearly US$0.76 cents as a result.

Glenn Stevens needs to cut our official interest rates as a matter of urgency - as I predicted earlier the Aussie dollar is making its way back to eighty US cents, this is completely unacceptable and will resume the hollowing out of our productive capacity and destroy the recovery in jobs.

Drastic action needed NOW, not "further down the track" or "wait and see".
  LancedDendrite Chief Commissioner

Location: North Haverbrook; where the monorail is king!
Glenn Stevens needs to cut our official interest rates as a matter of urgency - as I predicted earlier the Aussie dollar is making its way back to eighty US cents, this is completely unacceptable and will resume the hollowing out of our productive capacity and destroy the recovery in jobs.

Drastic action needed NOW, not "further down the track" or "wait and see".
don_dunstan
I'm not sure if lowering interest rates is the right remedy to lower the Aussie dollar. Doing that won't stem the inflow of foreign capital into housing (and the banks, who are basically only in the mortgage industry these days). We can't change much of the other big demand driver for AUD, which is the iron ore market. The low oil price is sending less AUD abroad too.

The Reserve Bank needs to institute more macroprudential regulation of the mortgage sector and the Feds need to institute housing market reforms fast in order to deflate that market. You've gotta stimulate the economy without inflating the housing bubble further and I don't think lowering interest rates is going to do that. Our mortgage lenders are too greedy to not use lower interest rates to make more bad loans.
  don_dunstan Minister for Railways

Location: Adelaide proud
I'm not convinced that its necessarily the right thing to do either - but it's the only solution that is politically acceptable. Capital controls, export quotas - any of these instruments will be strongly resisted and campaigned against by big business as being anti free-market... we all know who is pulling the strings with the current government so you might as well forget about that one.

Macro-prudential controls have been quietly applied to the banking system over the last year or so and to some extent they're working - I think there was a lot of concern about risky mortgage lending a while back but that's been ameliorated by tighter lending standards, particularly with people who have gone balls deep on residential investments properties. Further cuts in interest rates are unlikely to re-ignite the (already) white hot Sydney and Melbourne property markets in my opinion because of the risk of increased diligence on lenders throwing more money at over-leveraged mortgagees... they're onto that one now.

The big losers with any further interest rate cuts will be savers and self-funded retirees - I think it was Graham from Queensland who previously mentioned this as an undesirable consequence - but the reality is that cuts in the official interest rate will be the only option considered by government/The Reserve and we need urgent action right now or we risk a further surge in the dollar towards parity.
  don_dunstan Minister for Railways

Location: Adelaide proud
The founder of Atlassian says Sydney is way too expensive to maintain a presence there (Daily Mail). Mike Cannon-Brookes says that housing, transport and education are all too expensive in Sydney and that he couldn't get overseas staff to move there.

Weird how we went from being such a low-cost place to establish and run businesses 20-30 years ago to one of the most expensive places to live in the world.
  locojoe67 Assistant Commissioner

Location: Gen X purgatory/urban Joh-land
"Low cost to high cost"

This is largely the outcome of a big increase in credit and loans since the financial deregulation of the eighties. Most of that speculative money has flowed into property but it also reflects in lowered purchasing power.

Aka "higher costs".

The currency has already been substantially devalued since the 1980s. This process has been masked by a flood of cheap Chinese imports and lowered  vehicle tariffs. The result is that cars are perceived as cheaper, housing is nuts, and malinvestment from speculative activity has had two decades to accumulate.

Macro prudential reform is regulatory window dressing. The real show has barely started. Official interest rates will go negative and bank runs will be postponed by banning cash. Holders of savings will be encouraged to spend it but as the early Japanese experience shows, people  buy safes and store cash at home. This is unlikely to be permitted for long as the banks cannot satisfy that level of demand for cash.
  don_dunstan Minister for Railways

Location: Adelaide proud
IN terms of our own situation, it's very hard to predict what will happen next but there's no doubt that interest rates will have to be cut - this morning the AU$ now inching towards US$.77 - starting to head back to mining boom territory merely because our official interest rates are relatively high at 2.00% compared to 0.5% in the US and UK.

Globally, we have this perverse situation where central bankers like Draghi are seriously talking about permanent 'helicopter money' to try and keep the European economy going - a bit like Kevin Rudd's $900 free cash except on a regular basis. Keynes once proposed the same sort of thing during the Depression: His idea was that the British government would bury bottles of cash on beaches and in coal-mines for people to find so that their subsequent spending would stimulate the moribund economy.

Do they seriously have no other ideas for keeping the global economy going apart from throwing money away? Surely it's got to ring alarm bells for the future of the fiat currency system when they start actually giving the stuff away because super low/negative interest rates didn't work.

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