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blue skies

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  1. Australian Housing is over priced by 50% , making it the third most over priced property market in the world according to the Economist.

    AMP Capital chief economist Shane Oliver said that the report was broadly correct. " But by my calculations property prices are about 27% too high, though its difficult to see much of a correction, " he said.

  2. Tried to read this but it's almost impossible to decipher.

    Seems aussie bears are deep in the anger stage. I'm not even a bull but I'm finding this all very funny.

    Anyway, I have a Centrelink appointment to keep before heading to weightwatchers and the trichologists. It's hard work maintaining two identities for four and a half years, posting from two IP addresses and all.

    The 2 of you produce more Bile than a caged bear in China !

    Try looking at the original post on page 99

  3. View PostBardon, on 02 January 2010 - 04:56 AM, said:

    Well houses are selling like hotcakes at the moment so by your analogy that means they must be affordable.

    Blueskys replys are in between the (............) Funny how Bardon never replied to this post


    (Yes at 6.2%borrowing rate and with the gov incentive! will it allways be so or do you think interest rates will go lower and the gov will offfer bigger and better incentives?

    Steve Keen you have got to be joking he is a complete and utter oxygen thief that got it orders of magnitude wrong on house prices and unemployment, what has he ever done to be held in such high regard ?

    (He was one of only a few independent thinkers who predicted the crash.) "oxygen thief" you give away your true thinking putting down people for no reason, is it just possible that it is you who its the oygen waster?

    I actually prefer reading the work of people that have done something with their lives, nothing wrong with those that haven’t either but don’t tell me to read about them or their work.

    ("try reading some of Steve Keens work" hardly a demand. Do you think that trying to ramp up or down property on this site is a great deed. Or braging about your finantual situation? Do you have your own site? Steve does.

    It’s his paying students that I feel for.

    (I wish I was educated enuff to understand all the complicated maths)

    If I were to get it as wrong as him in my workplace, I would be ran out of town and more than likely sued for professional negligence but for you it is all about non consequential headline grabbing, sounds good to academics ,classical economic model predictions.

    (Now you put words in my mouth! can you read my mind? Hmm I dont think you understand you own thinking. As I have said the future is unknown we all of us make a educated gess no more no less. Steve Keen is not a Orical but I take notice of his thoughts and yours and than I take my chances and put my money were I recon it will do best. I have bein wrong and right about a lot of things . Steves prediction of a property crash in 2009 was dashed by government reducing interest rates to low lows, incentives for house buyers and stimulas packages.

    When I was working, I never had time to spend a fraction of the time you spend here, just how do you manage it?)

    ............... Bardon Aussieboy are in all probability one in the same. I have this image of of a unemployed bald, over weight, middle aged man shaking his fist at at the computer screen

  4. Has there been a better time in the past two years to liquidate your entire share portfolio?

    We'll get back to that question in a moment. It's probably a good time to raise the issue, though, because the stock market's performance in the last six months is the best in two decades. If you want to sell at the top, this might be your best chance for a while.

    "The median local share fund surged 39.5 per cent last year, outperforming the 37.6 per cent rally recorded by the S&P/ASX 300 Index in calendar 2009, according to figures compiled by Mercer, an investment consultant," reports Eric Johnston in today's Age. But why would you sell just when things are getting good?

    Well, when things can't get any better, they usually don't. Of course the S&P ASX/200 could make a new high. That would be better. For the record, the index is still over 25% below its October 2007 high. A rally from these levels to a new high would be a 38% move.

    Put on your Imagineering cap for a moment and figure out how to get an index that much higher from its current level. As the two charts below from the RBA's latest chart pack show, stocks are already expensive based on historic price-to-earnings ratio AND the average dividend yield on Aussies stocks as returned to pre-crisis levels.

    PE Ratios Dividend Yields

    The average P/E on Aussie stocks is now around 23. That's nearly as high as it was 1991. There are two ways for the P/E ratio to down. Earnings can rise or prices can fall. We stepped into the way back machine and asked Murray what happened in the Australian market back in the early 1990s. The answer was: a post-recession rebound in earnings (off a low base) which the market priced in, racing ahead massively for the next two years.

    So is that possible now? Is the P/E ratio blowing out because we're at the bottom of the earnings cycle or the top of the price cycle? And normally, stocks give their best value when yields are high. High yields indicate you actually have to pay investors to own stocks, given their risk. Yields now are hardly compensation for the risk we think you're taking on.

    That doesn't rule out new highs this year, though. Stranger things have happened. With China-based euphoria in its early stages, a blow out in commodity exports coupled with higher resource prices (on a sinking U.S. dollar) could catapult the indices into the stratosphere.

    But here is our suggestion: liquidate your portfolios into the market strength. This period in the market - the confident but shallow recovery in stock prices following a terrifying drop - reminds us exactly of August and September of 2007. The market did in fact go on to make a new high in October of 2007. But that two month period between the August low and the October high was the perfect place to exit the market into strength.

    Writing in Diggers and Drillers at the time, we said: "I'm putting a sell recommendation on all of our North American shares...The fallout from the credit bubble could wipe out many years of gains in solid resource stocks. The way to prevent that is to take profits now and use the cash to rebuild a portfolio for the new financial reality we're entering."

    Of course we didn't liquidate everything. That 2007 strategy was based on the U.S. dollar being a major casualty of the credit depression. Even if the market had moved up, the move down in the dollar would have crushed your currency-adjusted returns as an Aussie investor. We stayed in a handful of Aussie resource positions, which much to our disappointment, were equally crushed by the deflating bubble in global stock markets.

    Today feels a lot like then. The psychological similarities are obvious. Of course this could be a weakness, analysing the current scenario in terms of a highly unpleasant and fearful situation that's front in centre in the mind. It's possible we're thinking too much about the past and not enough about future earnings.

    But when it comes to earnings, the massive recovery (in year over year terms) has already happened. The stimulus helped a bit. And the 2008 base flattered 2009 earnings, which the stock market duly priced in. Our sense is that your best strategy now is to reduce the percentage of your assets allocated to shares. You can do so now by selling into a rising market.

    How much longer it will rise is anyone's guess. But the fundamental momentum, that seems tapped out. And more importantly, the rally in markets has been rigged by a money-printing scheme generated on Wall Street and in Washington. You've got a looming sovereign debt crisis in Greece and real, immediate problems in how the U.S. plans to finance its deficit. It's a financial minefield out there. Step lightly.

    While some of these currency events ought to be bullish for the Australian dollar, we reckon they will lead to a spike in volatility and a huge aversion to risk. Like it or not, Aussie equities are treated as emerging market equities by international investors. We've seen how quickly capital flows into Aussie stocks can reverse in the past. If and when it happens again, the retesting of the 2003 lows could happen a lot quicker than you think.

    Seem impossible? Well, it's true that the Aussie market is also rigged to rise. Compulsory super plus a compulsory allocation in Aussie equities by Super Funds means there's always money flowing into Aussie stocks. The "weight of money" argument says they have to go up with so much mandatory liquidity.

    But even in a bath tub, liquidity is a two way street. Super funds can take your money and buy stocks, bidding them up. But if value disappears down the drain even faster, your money disappears in a nice little whirlpool. This is the downside of compulsory super: you are compelled to support a scheme in which everyone else gets paid regardless of performance and you take all the risk.

    So that is today's big revelation in today's Daily Reckoning: retire now! Today is that rainy day.

    Investors have been led to think that there is always some asset class or equity sector where your money will do better both absolutely and relatively. But we'd suggest now is a good time to consider liquidating a portion of your financial assets and exchange them for practical, useful things you'll need in your retirement.

    Yes, part of this is based on our bearish position on paper (fiat) money. Paradoxically, we'd suggest a higher allocation to cash simply because of its utility. Cash gets smashed in an inflation. It's arguable you're better off in stocks if inflation runs rampant. But we reckon having liquid assets will be highly desirable in the coming 24 months.

    On the tangible side, there is gold, other precious metals, and real estate (land you want to own, not house price speculation). And we would maintain a portfolio of resource and conventional and unconventional energy companies. You can consider these call options on scarcity and a crashing U.S. dollar.

    New companies emerge in disruptive times to make a fortune. And in the energy space, oil and gas are scarcity bets, while alternatives like coal-seam-gas or "tight gas" from shale-bearing rock formations give you the leverage that only small stocks and resource stocks have.

    Those are what we think Nasim Taleb would call the good kind of "Black Swan" - namely a low probability but high magnitude event. The thing doesn't happen often...but when it does happen, it's very good and usually very bullish for stock prices. You want to own a portfolio of positive Black Swans, or a flock, if you prefer.

    Are we being overly fearful ? Nope. The writing is on the wall for retirement assets held in conventional ways. A report last week in Business Week shows that the U.S. Feds have 401(k) assets in their sites. Now ostensibly, the plan to offer an annuity option for 401(k) plans will seem sensible. But don't be fooled.

    This is the beginning of a money grab by the Feds for the $3.6 trillion in assets held by U.S. 401(k)s. The Feds need that money to finance the deficit. This is where some of the money to fund the deficits may come from, answering a question we asked earlier in the week. What you can't take, you'll have to print.

    But right now, the Feds can't just take that 401(k) money. Well, they could. But it would crash stocks and infuriate the public, leading to some civic violence. What's more, it would feel like theft as well as looking (and being) like it. So they have to dress the plan up as something that's better for savers.

    They're trotting out the idea that a defined benefit pension plan is better than defined contribution plan (which is true, if it's funded well). A defined benefit plan guarantees you income in your old age years. A defined contribution plan (what we have now) just guarantees money flows into the stock market (which is good for the financial services industry, but don't guarantee you'll have any money when you really need it later in life).

    The U.S. Treasury Department and the Obama administration are exploring ways to encourage U.S. savers to buy more annuities or investment vehicles composed of "safe" assets. What constitutes safe? Why 30-year U.S. government bonds of course! Thus, the government can encourage people to buy what the Chinese and the Japanese and most other U.S. creditors don't want to touch any longer.

    The trouble with an annuity or 30-year bond is that you get crushed by inflation. In principle, it's not different that a zero coupon bond. You get your nominal investment back upon redemption. But you are not compensated for inflation and your money is tied up, instead of working harder for you elsewhere.

    It's obvious what the Fed's get out of this: a ready source of new funds to buy their bonds. This kicks the can of unsustainable deficit spending down the road a few months, or perhaps a few years. But it doesn't change the fundamentally destructive path of U.S. fiscal policy.

    What it does tell you is that mischief is afoot among the wealth stealers of the modern nation state. Faced with a failed funding model, they are beginning their cash grab. This takes the form of higher taxes. But the big bounty is the retirement savings of millions of Americans...and Australians.

    Yes, it could happen here too. How long before Super Funds are compelled to buy Aussie debt because it's "safe?" This solves the problem of having to sell the debt to foreign investors. And it solves the problem of having to make tough budget deficits. Just issue more debt and make the super funds buy it with your money.

    If you think that's balderdash or won't happen, you're being naïve. It won't happen overnight. But it will happen gradually. It's evolving towards that already. If they can't get it through tax or royalty revenues, the tax posse will get it by any means necessary, which means your super assets are an obvious target.

    Alarmist? Irresponsible? You decide. But we can see the evolution of this as clear as day, even if saying it in public is bad form or taboo. But now is the time to say the taboo things.

    That's why we've been working with our colleague Jim Davidson to re-launch his visionary newsletter, Strategic Investment. For twenty years, Jim railed against the dangers of the credit cycle and deficit spending and bad public policy. And by his own admission, it was a giant waste of time.

    We visited Bill Bonner in France in September and agreed Jim's big-picture macro and historical analysis would be an extremely valuable investment tool right now. So even though we're in Australia and he travels between Brazil and the United States, we agreed to partner up and publish his new version of Strategic Investment.

    And we're glad we did. Reading the draft of his latest report we came across the following observation yesterday. We don't mind giving you a peek into the January report yet, even thought it hasn't been published. It's a critical point that bears on today's reckoning.

    Jim, writing about the possibility of a sudden breakdown in U.S. finances, writes, " I pause to acknowledge that the threat of collapse is a taboo thought. It trespasses one of the most cherished civic conventions of Americans, namely the view that the United States is a blessed country immune from the dire consequences of irresponsible policies that bring ruin elsewhere. Of course, as a literal proposition, this is preposterous."

    "I certainly would not wish to rely upon it for my future and the security of my family. Would you? I ask this rhetorical question, knowing that most Americans will refuse to bring themselves to prepare for a fiscal crisis of the welfare state until it is too late."

    "As you think about it, bear in mind that you cannot depend on the investment establishment, politicians and the news media to give you an advanced warning of the advent of the dire second and deeper stage of the credit cycle unwinding. They did not warn you about the subprime crisis and the first stage of collapse. You can count on them to be equally oblivious now. If anyone will help you prepare for what may lie ahead, it will have to be you."

    Whether the second and dire stage of the credit cycle is upon us just now is, of course, exactly the matter at issue. With the market rising and the sun shining, it doesn't feel like we're reaching a critical stage. But it didn't feel like that in September of 2007 either, and that turned out to be your last best chance to sell before the crash.

    Dan Denning

    for The Daily Reckoning Australia

  5. We've seen a lot of chatter over the past twenty-four hours suggesting the housing finance figures indicate a topping out of the housing market. We wouldn't be too sure about that just yet.

    Let me try and explain...

    One of the biggest furphies of 2009 is that there has been a 'deleveraging' in financial markets.

    The idea put forward by most mainstream hacks is that the banks aren't lending, and individuals and businesses aren't borrowing.

    This they claim could result in the terrible effects of price deflation, cause the economy to move into recession and result in the end of the world as we know it.

    Of course, all that is completely and utterly wrong.

    For a start, price deflation is a good thing. That's right, it's good. Not that you'll read anything about that in a Michael Pascoe or Ross Gittins column. It means the cost of goods and services get cheaper.

    The obvious example is the price of computers and plasma televisions which have dropped massively in recent years.

    Eight years ago you would have paid over $10,000 for what is now a modestly sized plasma TV. Drop in to any Harvey Norman or Good Guys today and you can pick up the equivalent sized box for less than a grand.

    That's price deflation at work, and it's good.

    So if it's good for plasma TVs why shouldn't price deflation be good for everything else? The answer is there's no reason. Unless you happen to be a mixed up Keynesian style economist.

    But before I take you through the latest housing finance figures let's take a look at why price deflation is good for you as a consumer, and prove why it won't send the country to the poor house...

    Prices won't fall to zero

    The argument put forward by price deflation haters - also known as price inflation lovers - is that deflation means everyone will stop buying things in anticipation of future lower prices. And that the economy will grind to a halt as consumers wait for the price of goods to fall to zero.

    But do you know what, it doesn't even sound plausible in theory let alone in practice.

    Let's look at the stock market as an example. I'm only choosing that because it's the simplest way of getting a price chart. But let's pretend that rather than it being a chart for the stock market that instead it's a chart for... tins of baked beans.

    And that the scale on the right is 60 cents at the top and 30 cents at the bottom:

    XJO Weekly

    So you can picture that in early 2008 baked beans were in demand and the price was high. Then suddenly consumers decided that 60 cents a can was too much. It wasn't worth it. Consumers abandoned baked beans and switched to, say, canned spaghetti instead.

    What happened to the price of baked beans?

    As demand for them dropped, the price dropped. Consumers had changed their tastes. No longer did they desire dolloping a whole can of beans on a couple of slices of toast.

    As consumers turned away, the price kept dropping and dropping and dropping. Would the price of baked beans reach zero? No, not a chance. Even if every baked bean manufacturer went bust the price of baked beans wouldn't be sold for zero dollars.

    Either an astute business person would buy up all the inventory on the cheap and sell them to the public at knock down prices, or someone would see the opportunity to import lower cost baked beans from overseas to meet the demand at lower prices.

    You see, as the price drops, consumers start to recover their taste for baked beans. Naturally the change doesn't happen overnight. As the price drops more and more consumers start buying up again - just like buyers buying shares as prices fall.

    Until at last when the price of baked beans falls to around the 30 cent level consumers start to buy in their droves, "no more canned spaghetti for me!" the populous yell, "it's baked beans all the way."

    Deflation is great for the consumer. It should be encouraged. We all want to pay less for goods not more. No one does a high five celebrating the increased cost of goods. No one prays for higher prices because that's "good for the economy."

    They reason they don't is because higher prices aren't good for the economy and they aren't good for you either.

    The fact is, the Great Deflation Scare of 2009 is the biggest hoax since the Hitler Diaries.

    Governments destroy businesses

    When prices fall, sure consumers may not immediately swarm back in and start buying. But just like in the stock market, a point will be reached where a critical mass of buyers will re-enter the market and push prices higher again as demand increases.

    And that's what should be allowed to happen. In a free market that's what you would get.

    "But," the deflation haters then claim, "The baked bean manufacturer will go out of business because his input costs will still be high."

    Another fallacy. We can assume the abandonment of baked beans is widespread and not just for one manufacturer. Therefore baked beans manufacturers will put pressure on their suppliers to reduce costs, and so on through the economy.

    The problem is that this can only work in a free market economy. In a socialist economy where markets aren't free, and where it's hard for businesses to reduce costs, it's harder for individuals to experience the benefits of deflation.

    Instead much worse happens - companies go bust. Because they are restricted by government interference and regulations, companies find it harder to reduce costs and therefore find it harder to compete with lower prices.

    Their choices are to go out of business, or sending parts of their business offshore.

    Which is what many Australian manufacturers now do. Regulations and employment laws force employers to export jobs. But let's not think employers are innocent parties here either.

    Established employers are only half bothered by the extra costs of doing business. Those that are established are able to take some comfort that regulations make the barriers to entry for potential competitors much harder.

    That's why employer groups are happy to cosy up to government. The harder they can make it for new entrants to enter the market, and the harder they can make it for prices to fall the better for them.

    The last thing established businesses want is a truly free market, because they know they'll have to work for their money rather than benefit from government regulation and institutionalised duopolies.

    And of course they've got our arch nemesis the Australian Competition & Consumer Commission (ACCC) to help them with that as well.

    Buyers will always appear at the right price

    So what's all this got to do with the housing finance numbers?

    Well, simply put, the false claim is that just like price deflation, individuals and businesses haven't been borrowing money and therefore there could be a catastrophic fall in asset prices.

    It's been the drive behind the billions spent by the government on stimulus programmes and bribes.

    The fact that asset prices haven't fallen has been used to claim that Australia is somehow a miracle economy. That even though banks aren't lending and individuals aren't borrowing, asset prices (houses mainly) have remained high - it's a miracle!

    But before we start laying down the red carpet and opening up 'miracle' stalls for all the pilgrims to come and worship at, we should take a look at what's really happened to borrowing.

    The great deleveraging has been non-existent. It hasn't happened.

    In fact, if you look at the latest housing finance figures you can see that from a debt perspective it's pretty much business as usual. And by that I mean borrowing is on the up, up, up...

    Housing finance borrowing up 37% in 2 years

    The Australian Bureau of Statistics (ABS) figures show that "Housing Loan Outstandings to Households (Owner Occupied and Investment Housing)" as at November 2009 stood at $947,089,000,000 or in other words $947 billion.

    Compare that to November 2008 when it was just $811 billion or even November 2007 just as financial markets were about to implode. Back then it was $691 billion.

    Now tell me there's been any "deleveraging" whatsoever. Let the mainstream hacks explain how there's been deleveraging when housing debt levels have increased 37% during a period of supposed deleveraging.

    You can't even call it re-leveraging, because the leveraging never stopped. All that's happened is that it's moved at a different speed over the last two years.

    But a car going forward is still going forward whether it's travelling at 30km/h or 70km/h.

    And that's what's happened with the super leveraged Australian housing finance market. Again, to draw a comparison with our baked beans above, the demand is still on the rise, thanks purely and simply to the massive amounts of leverage.

    So far, thanks to government bribes and easy lending by the banks, there has been little reason for consumers not to "buy" loans. In fact it's been made easier for them.

    It would be the same if in our example consumers had been given "20 cent off" vouchers. It would have artificially reduced the price as far as the consumer was concerned and would have encouraged consumers to keep buying without giving manufacturers any incentive to drop their prices.

    The big point is what would happen after the "vouchers" are withdrawn and the underlying price is still high. Will consumers still pay the price or will they desert, waiting for the price to fall?

    In the case of housing, the "vouchers" are still there thanks to easy credit from the banks.

    The key to picking the top of the housing market is not so much looking for a drop in housing starts or building activity, but rather when the Great Leveraging from the banks finally runs its course.



  6. Hey Bardon,

    Is to possible you are painting your self into a corner not just by words but by deeds. Do you realise that when and if the housing market dropps 20%.

    You will be hung out to dry! Really all you bombasitic comments! If you are in as much hock as you claim your situation will be not be good.

    I get the impression that you are trying to convince yourself that house prices are gona Booooooooooooom!

    The Secret ?

    For myself gona sighn up a nother year rent lease.

    Hopefully make more outa interest than rent and then there is the chance of a house crash this year , I have waiting a long time

  7. Ian arkell :

    04 Jan 2010 6:42:45am

    Steve Keen’s figures don’t surprise me. Not one bit. What is it with Australia’s lemming-like fixation with debt? Are we a nation of financial morons and incompetents? I’m starting to wonder.

    Despite the GFC, Australians have learned nothing and are still fixated by real estate and easily seduced by low interest rates and debt. The agents, brokers and property spruikers all tell us that you can’t lose with real estate.

    As though real estate was some magical investment that can’t fail. And when you couple that with a banking system intent on lending to all and sundry, you’ve got problems.

    Young Australians have only known the halcyon days of real estate with few experiencing the recessions that wiped many people out. And the newspaper articles about some brilliant real estate guru who has made a million bucks in a week don’t help. How can you go wrong?

    You can go very wrong. But not if you listen to the property spruikers or watch the endless lifestyle programmes about making heaps of money by doing a quick repaint and getting some talking head in for a garden makeover.

    You’ve splashed a bit of paint on an old place, tidied it up and hey presto, you’re a developer. It makes sparkling dinner conversation and you’re convinced the Porsche is only another deal away. Anyway you’re both working, there’s plenty of cash flow and let’s face it, the tenant’s going to pay it off anyway.

    Maybe you’re doing it for the tax benefits and even if there’s a shortfall, you’ve both got good jobs. Yeah, but what if your great job in IT, goes belly-up? Can’t happen? Course not. Hypothetically though, let’s assume one of you loses your job.

    And then, and this is really ‘out there’ sort of stuff, but just suppose one of those lovely tenants also loses a job. Hearing any little warning bells yet? You should. Very loud bells.

    Now if rates creep up another 1 or 2 percent and you’ve got a three hundred grand mortgage, how you gonna feel? Thought so. Hey, just for the fun of it, imagine rates back round 10%. Tightens the sphincter doesn’t it?

    I think late 2010 is going to see a crunch the likes of which we haven’t seen before. All of it fuelled by low interest rates, people’s stupidity and the idiocy of things like the First Home Owners Grant.

    If you are heavily geared with a whole heap of debt in the coming twelve months, there’s a better than even money chance you’ll go broke. And get the chance to add the words ‘negative equity’ to your vocabulary.

    There are three sounds to listen for in 2010. The sound of the interest rate clock ticking, the heavy breathing of major banks as they realise how exposed they are to a major downturn in the real estate market and those damn level crossing bells.

    Feel a bit brighter now? That’s good. And I didn’t even touch on credit card debt.

    .........................I like this blokes advice

  8. Australia 'on verge of recession'

    * By David Uren

    * March 10, 2008 12:00AM

    * Looming economic downturn predicted

    * Home and share markets to plummet

    * China's growth won't insulate Australia

    THE economy is headed for recession next year, with a 50 per cent plunge in share values and a double-digit drop in house prices - that's what one analyst says.

    While the Reserve Bank takes a largely benign view of the unfolding credit crisis, believing China's growth will insulate us from its worst consequences, others are less sanguine.

    Morgan Stanley's chief market strategist Gerard Minack introduced a brief to clients last week saying: "I'm bearish - really bearish."

    He argues that Australia will be dragged into recession by a slowing world economy, the tightening grip of the credit crisis, and the effects of the Reserve Bank's succession of interest rate hikes.

    Start of sidebar. Skip to end of sidebar.

    End of sidebar. Return to start of sidebar.

    Survey: Have you been hurt by rising rates?

    Economists are often trapped by the inertia of the moment, failing to see the magnitude of both booms and busts and being forced into constant revisions of their forecasts.

    This makes Minack, who takes a long view, worth listening to.

    He argues that the market is coming to the end of its fifth bull run since the beginning of the 20th century.

    The bear markets that followed produced falls in the region of 50 per cent and lasted for two to three years.

    The problem is not that the market is overvalued, relative to earnings, but rather that earnings are themselves inflated and headed for a fall.

    Based on profit figures back to 1970, earnings are 44 per cent above their long-term trend.

    In the three recessions since then, real earnings per share fell by between 36 and 65 per cent from peak to trough.

    "You've got to argue that earnings do revert to their mean. On almost every measure we've got for earnings, be it profit share of GDP, return on assets or margins, it looks unsustainable," he says.

    Earnings have been inflated by spendthrift households running down their savings. While the Reserve Bank has argued that fears about housing debt are without foundation because household balance sheets are strong, Minack says the picture looks a lot worse when you look instead at household cash flow.

    The latest annual national accounts show the household sector remains cashflow negative, with the deficit of 3.75 per cent of GDP accounting for half the current - account deficit.

    Besides, he says, household balance sheets also looked fantastic in Japan in 1990, before its lost a decade of economic growth.

    Minack is not persuaded by the proposition that Australia's housing market is somehow immune from the excesses of the US.

    Australians have more leverage, are as reliant upon equity extraction and base their household balance sheet on a housing stock that is far more expensive than their US equivalents.

    The household sector is booming at present, but is vulnerable to any reversal in fortune. The moment unemployment starts to rise, people will start defaulting on their housing loans.

    The view that Australia will be saved by China and the resources boom underestimates the magnitude of the forces ranged against us.

    China's growth may continue to require large flows of commodities, but commodity markets at present are being driven by speculative money that can flee as quickly as it came.

    Base metals prices could fall by 40 per cent and bulk commodities by 15 per cent without heralding the end of the Chinese driven "super-cycle".

    Commodity markets are facing not only the prospect of a recession in the US, but also the possibility of recessions in Japan and Britain, with a slowdown in Europe.

    The long-awaited rise in the volume of mining exports will not save us, with Minack calculating it will raise GDP by, at most, 0.1 or 0.2 percentage points.

    The terms of trade, by contrast, has lifted GDP by about 9 per cent, while the increase in business investment caused by the resources boom has added about 3.5 percentage points.

    "People react as though there is some injustice. Here we are with the market down 20 per cent, when our economy looks strong and China keeps growing," he said.

    "People miss the point that we're hugely wrapped up in the global credit crunch because we are one of the world's largest issuers of capital, with the most over-priced finance sector in the developed world and a rickety housing sector.

    "People think we're Teflon coated because of links to China. I don't think that's true."

    The point of listening to bears is that they have taken hold of the markets.

    Minack says if you took the spreads on credit-default swaps literally, you would be forecasting financial Armageddon. Based on the latest benchmarks for default spreads, 7.8 per cent of investment grade corporate debt in the US is expected to default, more than double the worst actual default rate in the last 40 years.

    Credit markets do not expect Australia to remain immune, with default spreads on corporations here rising in line with those in Europe and the US.

    Markets overshoot - and Minack believes they have - but he is not convinced they have yet reached their bottom.

    It reverses the overshoot when margins were so unrealistically low that investors took on huge leverage so that they could make a return. The point about the panic in credit markets is that it affects the real economy.

    "That's why there's no point in asking whether the credit markets or the equity markets have it right," he said.

    "Dislocation in credit markets puts a cloud over the economy and over equity."

    It is an unfriendly environment for one of the world's largest debtor economies.

  9. It is the norm for rents not to cover the repayments for land lords..

    However I can not remember a time when the extra $ the land Lord must pay has bein so high.

    Just interest repayments @ 6.2% on $400,000 = 24,800 Pa. now the rent would be $350 per week = $18,200.

    The Gov just keeps brining in more and more people. ( maybe the new comers will think of a way to solve the water, housing and unemployment problems)

    There is presure on rentals.

    Land lords with fore thought are selling up ! Interest rate increases will cut deep into profit, look at the low rental returns, property has just gone up 3 times in price in 8 years ( the risk is there price may stagnate for 10 years or drop),

    I think in the next 5 years we will see higher rents and lower house prices.

  10. Quote

    A deposit war has flared up between the banks, which are offering term deposit rates of up to 7 per cent for three years. Even a 12-month deposit, which would still be government guaranteed, is paying up to 6.8 per cent.

    These are unprecedented returns when compared with either the Reserve Bank's official cash rate or the rate at which the banks are lending.

    In some cases the banks are paying out more for deposits than they're earning from the variable mortgage rate, which starts about 6.1 per cent.

    The Reserve Bank is expected to lift rates again, possibly as much as one percentage point, which would also see term deposits rise


    Ok Westpac now offer 8% for a 5 year deposite.

    The reason for banks offering high rates for deposits:

    One third of bank funding must come from some were other than the Australian government.

    Overseas markets are charging more to borrow out money, Fear is the reason for this, there are still many more bad loans out there and regardless of the properganda the news papers put out has nothing to do with heating up of the economy.( but over heating is probably the reason for increases in rates in Australia given the big bubble in property)

    Australian banks figure that the are better off in the long term to raise the funds in australia.

    So how long do you think a bank can borrow money out at 6.2% and borrow money in at 8% ..................... Yes interest rates for borrowers are going to go up a lot and very very soon.

    Banks pay 3.75% for two thirds of there borowing from the gov and 7% on the open market? so another 1% increase soon ?

  11. Well houses are selling like hotcakes at the moment so by your analogy that means they must be affordable.


    (Yes at 6.2%borrowing rate and with the gov incentive! will it allways be so or do you think interest rates will go lower and the gov will offfer bigger and better incentives?

    Steve Keen you have got to be joking he is a complete and utter oxygen thief that got it orders of magnitude wrong on house prices and unemployment, what has he ever done to be held in such high regard ?

    (He was one of only a few independent thinkers who predicted the crash.) "oxygen thief" you give away your true thinking putting down people for no reason, is it just possible that it is you who its the oygen waster?

    I actually prefer reading the work of people that have done something with their lives, nothing wrong with those that haven’t either but don’t tell me to read about them or their work.

    ("try reading some of Steve Keens work" hardly a demand. Do you think that trying to ramp up or down property on this site is a great deed. Or braging about your finantual situation? Do you have your own site? Steve does.

    It’s his paying students that I feel for.

    (I wish I was educated enuff to understand all the complicated maths)

    If I were to get it as wrong as him in my workplace, I would be ran out of town and more than likely sued for professional negligence but for you it is all about non consequential headline grabbing, sounds good to academics ,classical economic model predictions.

    (Now you put words in my mouth! can you read my mind? Hmm I dont think you understand you own thinking. As I have said the future is unknown we all of us make a educated gess no more no less. Steve Keen is not a Orical but I take notice of his thoughts and yours and than I take my chances and put my money were I recon it will do best. I have bein wrong and right about a lot of things . Steves prediction of a property crash in 2009 was dashed by government reducing interest rates to low lows, incentives for house buyers and stimulas packages.

    When I was working, I never had time to spend a fraction of the time you spend here, just how do you manage it?)

  12. All this smart argument : but here is the truth if houses are too expensive no one will buy them.

    Just who are you trying too convince? the future is uncertain

    The big veiw is that the world is hanging on a thread. (what work we must do today we have saved for tomorrow, what food we must save for tomorrow we have eaten today)

    Try reading some of Steve Keens work,

  13. Farmers are price takers not price makers why? try keeping 1000 liters of milk or 20 steers on a property that is at max holding ability.

    Dairy farmers are normaly small land holders who can just make ends meet with the higher value of milk , because there holdings are small they will not be able to carry enuff stock to make a living selling meat.

    People are traped in habit often doing things "just because" this peasant thinking is something we must all look to, by examing our own lifes

  14. My money is on a crash in property prices in Australia, I am really suprised that they have held on for so long.

    True the highest rates of nem people comming in ever are helping to keep prices high.

    First home buyers $7000 has helped a lot. ( for sellers not buyers).

    True Australia is riding on the comodities market (it can turn bad over night).

    China is spending like a drunk sailor, ( the stimulas money will stop soon)

    Austraia is so much in Debt (worse than the USA)

    Rising interest rares and unemployment must surely be comming (just who is gona borrow more to keep this going)

    So time wil tell

  15. You are allowed to make emergency repairs

    Step 1 : Can you contact the landlords agent? if yes get them to organize the emergency.

    Step 2 : If no contact can be made , write down the number and time you phoned. (Leave a mesage if possible)

    Step 3 : get 3 written quotes from licenced plumbers , and go with the cheapest one. (You will have to pay the tradesman and claim the money back from your landlord)

    Step 5 : Be sure to get a note for the payment when completed.

    Step 4 : Let your neigbour in on what is happening.

    The cost of repair cannot be deducted from your rent and if your landlord is a ***** you will have to get your money back in the civil courts.

  16. Iceland braces for Icesave bank vote

    * From correspondents in Reyjavik

    * From: AFP

    * December 31, 2009 9:55AM

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    ICELAND braced for a knife-edge vote in parliament overnight to compensate Britain and the Netherlands for a bank failure, as the Government threatened to resign if the bill is not approved.

    The bill is a key obstacle in Iceland's bid to join the European Union and has stirred up resentment among many ordinary Icelanders who have already been hit hard by their country's financial meltdown in 2008.

    It calls for the payout of 3.8 billion euros ($6.1 billion) to the British and Dutch governments for compensating more than 320,000 savers who lost money in the collapse of the Icesave online bank.

    According to estimates from members of parliament interviewed by AFP, the controversial legislation is likely to scrape through, with 32 MPs voting in favour of the deal, 30 opposing it and one MP still undecided.

    Voting was set to start at 9.15pm GMT following multiple delays.

    Start of sidebar. Skip to end of sidebar.

    Related Coverage

    * Iceland close to deal to repay losses The Australian, 6 Oct 2009

    * Iceland banks behaved 'like Enron' Daily Telegraph, 28 May 2009

    * Icelandic voters freeze out conservatives The Australian, 26 Apr 2009

    * Protesters want tycoons to pay debts The Australian, 8 Feb 2009

    * Iceland eyes post-poll EU membership NEWS.com.au, 2 Feb 2009

    End of sidebar. Return to start of sidebar.

    Thor Saari, deputy leader of the Movement opposition party, told AFP that there was "an agreement to start the voting tonight." But he added there was a possibility that the bill violated the island state's constitution.

    Icelandic media reported that lawmakers were debating changes to the bill.

    Icesave, an online subsidiary of the Landsbanki bank that had to be rescued in October 2008, attracted savers due to its high interest rates.

    They lost their savings when accounts were frozen during last year's credit crunch and were partially compensated by their own governments, which then turned to Reykjavik looking for the money to be returned.

    Iceland's parliament in August approved an initial compensation deal.

    But the British and Dutch governments rejected the arrangement, objecting to one of the amendments negotiated by Social Democratic Prime Minister Johanna Sigurdardottir in order to get the deal through parliament.

    The amendment set an expiry date of 204 for the state's guarantee for the repayment, regardless of whether the amount had been paid in full.

    The revised bill was introduced in parliament in October after an agreement on compensation between Britain, the Netherlands and Iceland.

    Adding to the pressure on lawmakers on Wednesday, Sigurdardottir has said her coalition government will resign if the new bill is not passed.

    The Icesave issue is a major obstacle to Iceland's EU membership bid and the IMF said in October that the dispute was the cause for a lengthy delay in extending financing to the recession-stricken country.

    On December 14, the IMF announced it had reached an agreement with Iceland on the release of a third tranche of a 2.1-billion-dollar standby loan arranged in November 2008 following the collapse of the Icelandic banks.

    A poll taken in August suggested nearly 70 percent of Icelanders were against the Icesave deal, the compensation amounting to about 12,000 euros for each citizen on the small island of 320,000 people

  17. Hmmm well every one of us is responsible for damage that we do.

    The damage was not done by you.

    I do advise you to report the damage to Police and explain to your managing agent

    If a stray car smashed into your rented house would you have to fix it?


    There is your answer

    But let me explain it is up to you to fix any damage that you or your invited gests may do. however fair ware and tear is OK

  18. A Low Volume Stock Market Rally and a Burst Real Estate Bubble

    by Claus Vogt 12-30-09

    Nilus Mattive

    One of the most basic technical rules says that sound stock market rallies are accompanied by high and rising volume. By contrast, bear market rallies are characterized by low and falling activity.

    Therefore, according to this rule, the rally of the past months has to be treated with great caution. From its beginning in March 2009, it was lacking volume.

    As you can see in the lower panel of the NYSE Composite Index chart below, this technical deficiency never healed, and got even more pronounced during the last month.

    NYSE Index

    Source: www.decisionpoint.com

    Especially notable and technically unhealthy was the pattern of rising volume during short-term corrections. Sound corrections are earmarked by low and declining volume.

    Taken together, the stock market rise off the March 2009 low has the look of a bear market rally … a huge one in fact. You might even compare it to the frightening experience of 1930.

    The Bear Market Rallies

    Of 1930 and 2009

    In 1930, the market rose roughly 50 percent from its 1929 crash low thus recouping half of the preceding losses. This monster rally led many contemporary economists, politicians and financial market experts to reason that the worst was over. But it was not to be …

    The Great Depression had barely started, and the stock market suffered losses of another 85 percent measured from this interim high of 1930.

    How does the current rally compare to this frightening potential predecessor?

    There is a scary similarity between the 1930 rally and 2009’s.

    There is a scary similarity between the 1930 rally and 2009’s.

    Well, from the March low the S&P 500 has soared 69 percent in nine months. In doing so it recouped a bit more than 50 percent of its former losses. But it’s still 27 percent below its all time high of October 2007.

    Yes, the market rallied strongly in 2009. But it did the same thing in 1930. History then tells us that the current stock market rally is not sufficient enough to reason that the worst is over.

    In addition, we have to accept the reality that …

    The Burst Real Estate

    Bubble Is Still with Us

    The aftermath of the burst real estate bubble is not over yet. We can expect more bad news, more bad debts, more bank failures, and the bad times to last much longer.

    If you aren’t convinced, take a look at what the Treasury Department did on December 24:

    In September 2008 the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship. At the same time Treasury established Preferred Stock Purchase Agreements (PSPAs) to ensure that each firm maintained a positive net worth.

    Based on its recent action, the Treasury Department does not believe that the real estate crisis has ended.

    Based on its recent action, the Treasury Department does not believe that the real estate crisis has ended.

    Treasury is now amending the PSPAs to allow the cap on Treasury’s funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth over the next three years. At the conclusion of the three-year period, the remaining commitment will then be fully available to be drawn per the terms of the agreements.

    This tells me that the Treasury Department is convinced that the worst of the burst real estate bubble is yet to come. Why else would they be providing unlimited financial support for the two largest Zombie banks the world (outside Japan) has ever seen?

    As we move into a new year, the stock market’s technically weak rally and the repercussions of the burst real estate will follow along. So stay flexible with your investment strategy because we could be in for another hard fall.

  19. Eric Sprott & David Franklin

    Who's buying all that US debt?

    In a recent note to clients, we discussed how much debt the US government would need to issue in order to balance the budget for fiscal 2009. We calculated they would need to sell $2.041 trillion in new debt – or almost three times the new debt that was issued in fiscal 2008.

    As a thought experiment, we separated all the various US Treasury owners and asked our readers whether each group could afford to increase their 2009 treasury purchases by 200 per cent. In the end, we surmised that most groups couldn’t, and prepared our readers for the worst. Almost seven months later, however, nothing particularly bad has happened on the US debt front.

    There have been no failed auctions, no sovereign defaults, no downgrades of debt and no significant increase in rates: not so much as a hiccup in the treasury market. Knowing what we discussed this past June, we have to ask how it all went so smoothly. After all, it was pretty obvious that there wasn’t enough buying power to satisfy the auctions under ‘normal’ circumstances.

    In the latest Treasury Bulletin (published in December 2009), ownership data reveals that the United States increased the public debt by $1.885 trillion dollars in fiscal 2009. So who bought all the new Treasury securities to finance the massive increase in expenditures? According to the same report, there were three distinct groups that bought more than they did in 2008. The first was “Foreign and International Buyers”, who purchased $697.5 billion worth of Treasury securities in fiscal 2009 – representing about 23 per cent more than their respective purchases in fiscal 2008. The second group was the Federal Reserve itself. According to its published balance sheet, it increased its treasury holdings by $286 billion in 2009, representing a 60 per cent increase year-over-year. This increase appears to be a direct result of the Federal Reserve’s Quantitative Easing program announced this past March. Most of the other identified buyers in the Treasury Bulletin were either net sellers or small buyers in 2009.

    While the Q4 data is not yet available, the Q1, Q2 and Q3 data suggests that the state and local governments and US savings bonds groups will be net sellers of US Treasury securities in 2009, while pension funds, insurance companies and depository institutions only increased their purchases by a negligible amount.

    So who was the third large buyer? Drum roll please... it was “Other Investors”. After purchasing $90 billion in 2008, this group has purchased $510.1 billion of freshly minted treasury securities so far in the first three quarters of fiscal 2009. If you annualise this rate of purchase, they are on pace to buy $680 billion of US treasuries this year – or more than seven times what they purchased in 2008.

    This is undoubtedly the group that made the US deficit possible this year. But who are they? The Treasury Bulletin identifies “Other Investors” as consisting of individuals, government-sponsored enterprises (GSE), brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, individuals and other investors. Hmmm. Do you think anyone in that group had almost $700 billion to invest in the US Treasury market in fiscal 2009? We didn’t either.

    To dig further, we turned to the Federal Reserve Board of Governors Flow of Funds Data, which provides a detailed breakdown of the owners of Treasury Securities to Q3 2009. Within this grouping, the GSE’s were small buyers of a mere $5 billion this year; broker and dealers were sellers of almost $80 billion; commercial banking were buyers of approximately $80 billion; corporate and non-corporate businesses, grouped together, were buyers of $11.6 billion, for a grand net purchase of $16.6 billion. So who really picked up the tab?

    To our surprise, the only group to actually substantially increase their purchases in 2009 is defined in the Federal Reserve Flow of Funds Report as the “Household Sector”. This category of buyers bought $15 billion worth of treasuries in 2008, but by Q3 2009 had purchased a whopping $528.7 billion worth. At the end of Q3 this household sector category now owns more treasuries than the Federal Reserve itself.

    So to summarise, the majority buyers of Treasury securities in 2009 were:

    1. Foreign and international buyers, who purchased $697.5 billion.

    2. The Federal Reserve, which bought $286 billion.

    3. The household sector, which bought $528 billion to Q3 – which puts them on track purchase $704 billion for fiscal 2009.

    These three buying groups represent the lion’s share of the $1.885 trillion of debt that was issued by the US in fiscal 2009.

    We must admit that we were surprised to discover that “households” had bought so many Treasuries in 2009. They bought 35 times more government debt than they did in 2008. Given the financial condition of the average household in 2009, this makes little sense to us. With unemployment and foreclosures skyrocketing, who could afford to increase treasury investments to such a large degree?

    For our more discerning readers, this enormous “household” investment was made outside of money market funds, mutual funds, ETF’s, life insurance companies, pension and retirement funds and closed-end funds, which are all separate reporting categories. This leaves a very important question: who makes up this household sector?

    Amazingly, we discovered that the Household Sector is actually just a catch-all category. It represents the buyers left over who can’t be slotted into the other group headings. For most categories of financial assets and liabilities, the values for the household sector are calculated as residuals. That is, amounts held or owed by the other sectors are subtracted from known totals, and the remainders are assumed to be the amounts held or owed by the household sector.

    To quote directly from the Flow of Funds Guide, “For example, the amounts of Treasury securities held by all other sectors, obtained from asset data reported by the companies or institutions themselves, are subtracted from total Treasury securities outstanding, obtained from the Monthly Treasury Statement of Receipts and Outlays of the United States Government and the balance is assigned to the household sector(emphasis ours)".

    So to answer the question – who is the household sector? They are a PHANTOM. They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report.

    Our concern now is that this is all starting to resemble one giant ponzi scheme. We all know that the Fed has been active in the market for T-bills. As you can see from the table below, under the auspices of Quantitative Easing, they bought almost 50 per cent of the new Treasury issues in Q2 and almost 30 per cent in Q3. It serves to remember that the whole point of selling new US Treasury bonds is to attract outside capital to finance deficits or to pay off existing debts that are maturing. We are now in a situation, however, where the Fed is printing dollars to buy treasuries as a means of faking the Treasury’s ability to attract outside capital. If our research proves anything, it’s that the regular buyers of US debt are no longer buying, and it amazes us that the US can successfully issue a record number of Treasuries in this environment without the slightest hiccup in the market.

    click the image to enlarge

    Bill Gross is co-chief investment officer at PIMCO and arguably one of the world’s most powerful bond investors. He recently revealed that his bond fund has cut holdings of US government debt and boosted cash to the highest levels since 2008. Earlier this year he referred to the US as a “ponzi style economy” and recommended that investors front run Uncle Sam and other world governments into government debt instruments of all forms. The fact that he is now selling US treasuries is a foreboding sign.

    Foreign holders are also expressing concern over new Treasury purchases. In a recent discussion on the global role of the US dollar, Zhu Min, deputy governor of the People’s Bank of China, told an academic audience that “the world does not have so much money to buy more US Treasuries.” He went on to say, “the United States cannot force foreign governments to increase their holdings of Treasuries… Double the holdings? It is definitely impossible".

    Judging from these statements, it seems clear that the US cannot expect foreigners to continue to support their debt growth in this new economic environment. As US consumers buy fewer foreign goods, there are less US dollars available for foreigners to purchase future Treasury securities. Foreigners are the largest source of external capital that can be clearly identified in US Treasury data. If their support wanes in 2010, the US will require significant domestic support to fund future debt issuances. Gross’s recent comments suggest that their domestic support may already be weakening.

    As we have seen so illustriously over the past year, all ponzi schemes eventually fail under their own weight. The US debt scheme is no different. 2009 has been witness to spectacular government intervention in almost all levels of the economy. This support requires outside capital to facilitate, and relies heavily on the US government’s ability to raise money in the debt market. The fact that the Federal Reserve and US Treasury cannot identify the second largest buyer of treasury securities this year proves that the traditional buyers are not keeping pace with the US government’s deficit spending. It makes us wonder if it’s all just a ponzi scheme.

  20. The financial fireworks are far from over

    Despite state bailouts buying the private sector time, 2010 may not be the mundane and humdrum year that we're all hoping for

    * Larry Elliott

    * guardian.co.uk, Monday 28 December 2009

    * Article history

    It's December 2010. Another year is drawing to a close and the moment has arrived to sum up what has happened over the past 12 months.

    After the banking crisis of 2008 and the global recession of 2009, there is far less to write about. The global recovery that began in the second half of 2009 has gathered pace as 2010 has worn on. China has enjoyed another year of growth, as has India. Confidence is back in the US, illustrated by the continuation of the bull market on Wall Street. Alistair Darling proved spot on with his forecast that the UK would clamber out of recession at the end of 2009, but a fat lot of good it did him or his party. The Conservatives are in office with a decent working majority…

    That just about sums up the consensus view. The fireworks of the past 30 months are over, at least for now. The next 12 months are going to see a welcome return of the humdrum, and thank heavens for that. For the moment, dull is good. A bit of dull is just what we need.

    Call me a contrarian, but this all seems a bit too tidy. My guess is that 2010 will prove to be far less mundane than the markets and policymakers expect – and here are five reasons why.

    The first is that the state of the global economy is much more precarious than the recent data suggests. What we've seen in 2009 is a stupendous, co-ordinated effort by governments to prevent a brutal recession turning into something much nastier. Last week's national accounts data in the UK provided just a snapshot of how policy action has boosted demand, with public-sector investment compensating for weak spending by the private sector. It's the same everywhere. The US housing market is being propped up by tax breaks; the Chinese have flooded their economy with credit; the Germans and the French have used "cash for clunkers" schemes to boost consumer spending.

    The hope, of course, is that the willingness to slash interest rates, create electronic money and run up hefty record peacetime budget deficits has bought time for the private sector, so that when state intervention in the economy starts to diminish, consumers and businesses will be in a fit enough state to grab the baton. There is no guarantee that this will happen, particularly since it will prove mightily difficult – nigh-on impossible, perhaps – for policymakers to judge when and how to remove the stimulus.

    This is the second reason why 2010 is going to be interesting. Calibrating the right level for interest rates and public spending is tough enough when economies are broadly stable and it is a case of moving bank rates up by a quarter of a percentage point or trimming the budget deficit by a few billion here or there. But the days of fine tuning are long past, and the chances of error are extremely high. The result of tightening too soon or by too much will result in a double-dip recession. Leaving policy too loose for too long would risk asset-price bubbles and higher inflation.

    Ireland excepted, policymakers have so far opted for caution and are likely to continue doing so for some time. There is justifiable concern that the private sector is not strong enough to sustain the policy-induced recovery in the second half of 2009. As a result, interest rates will stay low for the whole of next year, and finance ministers will take their time in reining in budget deficits. That will be the case in Britain – whoever wins the election – since any cuts made by an incoming Tory government would not bite until the 2011-12 fiscal year.

    Assuming there is one. It is taken as read that David Cameron will be the next occupant of 10 Downing Street, but he looks less of a shoo-in than he did three months ago. The fact that the Tories are performing badly in local government byelections, even in marginal seats where they have been concentrating Lord Ashcroft's financial firepower, suggests there is little appetite for Cameron as prime minister. John Ross, the former economic adviser to Ken Livingstone, noted last week that Tory support in general elections has been in decline since 1931, with Cameron's inability to lift the party above 40% in the opinion polls a reflection of this trend.

    It could be argued that Labour's support has also been trending lower since a high point in 1951, but Ross's point is well made. Cameron can still win, but he is heavily reliant on Labour remaining unpopular. The third big question is whether, against a backdrop of an improving economy, Gordon Brown can snatch victory from the jaws of almost certain defeat.

    Whoever wins is going to face a tough economic challenge. It will be another year of wage restraint and job insecurity. Even if growth resumes it will be modest, barely visible to the naked eye. There will be little evidence of a feelgood factor.

    A taste of the spending squeeze to come was provided last week by Lord Mandelson's decision to take the axe to university budgets. There will plenty more of this in all the other areas that have not been ringfenced from cuts. Housing and transport look particularly vulnerable. A broader question is whether the UK can survive the year without a strike in the bond market and/or a run on sterling. All the ingredients are certainly in place: a big budget deficit, an underperforming and unbalanced economy, political uncertainty. A hung parliament, which some psephologists are predicting, could be the final straw.

    Fascinating though domestic politics will be over the next few months, we should not get too parochial. The big international stories of 2010 will be: can China survive the year without its hell-for-leather credit expansion ending in the traditional boom-bust? Will the downgrading of Greece's sovereign debt start a process that will spread to the other weak members of the eurozone, putting increasing strain on monetary union? Has Barack Obama got what it takes to reform Wall Street? To which the short answers are no, no and no. China has huge long-term potential and John Hawksworth, the chief economist at PricewaterhouseCoopers, says that within 20 years it will have a bigger economy, by purchasing power parity, than the US. But a lot of funny money has been pumped into the Chinese economy in the past two years; history suggests it is far easier to stoke up an asset boom than it is to let it down gently.

    Greece's problems certainly underline the tensions within the eurozone – not just the inability of the weaker countries to use devaluation to make themselves more competitive but the willingness of the richer countries (Germany primarily) to keep the show on the road. Even so, the political capital involved in setting up monetary union was considerable; the chances of a break-up in the short term are remote. About as remote, in fact, as Obama being as bold with Wall Street as Roosevelt was in 1933. Sadly, it will take another crisis – one that may not be long in coming – to prompt radical reform.

  21. Aussies $1.2 trillion in debt

    December 27, 2009 - 6:44AM

    In a new record, Australians now owe more in household debt than the country's entire economy earns in a year.

    Reserve Bank figures show mortgage, credit card and personal loan debts now stand at $1.2 trillion, up 71 per cent from just five years ago and equating to $56,000 for every man, woman and child in the country, News Ltd says.

    Our spending binge, fuelled most recently by the federal government's First Home Owner Grant, means personal debt now totals 100.4 per cent of Australia's annual GDP - one of the highest ratios in the developed world.

    "It's the first time household debt has cracked 100 per cent of annual GDP and it's a terrible, terrible sign," University of NSW economics professor Steve Keen told News Ltd.

    "It shows we are living beyond our means and many highly geared borrowers are now extremely vulnerable to further rate rises - they are already saturated with debt and will not be able to tolerate much of an increase to their repayments."

    Australia's financial headache is likely to get worse before it gets better. The country is in the midst of the peak spending season, when billions goes on the plastic, yet the Reserve Bank data dates back to October's debt levels only, so that means there are another two months of First Home Owner Grant-fuelled mortgage activity still to be taken into account.

    The extra cost is expected to add billions to the burgeoning debt tally.

  22. Westpac is a Australian bank one of the" four pillars of banking " the others are ANZ, NAB and Commonwealth,

    One third of bank borrowings come from international markets and it is getting expensive right noe you can get at call deposite rate of 5.45%. for one year 6.8% and if you are game to leave it in the bank for 5 years 8% however the government guarentee runs out in about 1 year.

    The really strange thing is that the variable house loan rate is 6.1% Hmmmmmmm what does that say to you?

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