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Is Australia The Canary in the Coalmine?

Economic indicators are looking bad for the Australian economy. Several times in the past I have said that the Treasurer Peter Costello is going to get egg on his face, mainly because he knows absolutely nothing about economics, the development of economic thought or even economic history. All of which makes him a typical politician.

I have lost count of the number of times I have pointed out that while the so-called boom-bust cycle consists of malinvestments it is generated by credit expansion. Professor Ludwig M. Lachman put it succinctly when he observed that while the boom is caused by monetary factors it constitutes real forces. This is something that the currency school never fully understood — and neither do neo-classical economists, including those in the Treasury and the RBA.

Loose monetary policies are the root cause of the business-cycle. These policies misdirect production, causing overinvestment in certain sectors. When the boom reaches its peak (I’m assuming that the central bank has not applied the monetary brakes) these malinvestments eventually emerge as idle capacity. At the same time productivity will be falling, despite the fact that investment has increased, wages will be bid up and profits squeezed.

Recession

Where Australia leads Britain will follow, so it seems.

BRITAIN is facing a manufacturing recession and the loss of more factory jobs over the next year, a leading business group has warned. The sector is 'persistently failing to sustain a meaningful recovery', says the British Chambers of Commerce.

As a result, factories are responsible for just 15% of national output against 20% in 1998.

UK manufacturing recession

If manufacturing enters recession as the BCC suggests will consumer spending come to the rescue, maybe the service sector (retail, financial services, leisure). Can economy shop its way out of a possible recession, or does a one trillion debt burden mean that this particular ‘option’ no longer exists?

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Is Australia The Canary in the Coalmine?

Recession

Where Australia leads Britain will follow, so it seems.

UK manufacturing recession

If manufacturing enters recession as the BCC suggests will consumer spending come to the rescue, maybe the service sector (retail, financial services, leisure). Can economy shop its way out of a possible recession, or does a one trillion debt burden mean that this particular ‘option’ no longer exists?

Sorry - but this is bullsh*t :lol:

Edited by Quokka

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Sorry - but this is bullsh*t :lol:

I beg to differ.

No matter what the RBA does recession can only be delayed and not avoided. And right now all the signs point to recession.

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If manufacturing enters recession as the BCC suggests will consumer spending come to the rescue, maybe the service sector (retail, financial services, leisure). Can economy shop its way out of a possible recession, or does a one trillion debt burden mean that this particular ‘option’ no longer exists?

The UK economy is on a knife edge.

If things get worse the BOE will be under enormous pressure to drop rates. But can they, in face of US fiscal tightening and a resurgent Dollar? The strong Eurozone growth figures today point to ECB rises sooner rather than later, putting more pressure on the Pound.

Some on the MPC may feel it has scope to drop rates 25-50 basis points anyway. But a falling pound just imports inflation, and if the oil price turns around and heads north again this will get worse. My guess is that despite the unanimous decision of the MPC in last couple of months, behind the scenes they are completely dividend over what to do next.

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whats with this 'knife edge'?

It can only go one way now.

After all, as a nation we have collectively DOUBLED our debt in 6 years vs an original sum that took 600 years to accumulate, including 2 world wars.

Gorra pay it back kiddies. No rich uncles to bale us out!

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Sorry - but this is bullsh*t :lol:

Actually its not. Historically Britain has exactly the same political dynamic that was going on 10 years ago in Australia. Right down to he personalities - a fairly weighty chancellor who everyone was pissed off with, waiting his turn and doing argueably a far more credible job than the prime minister (I don't like what he GB has done with house prices, and I just wish he would take his hands off the levers and let the correction happen, but I recognise skillful avoidance tactics when I see them), against a fading populist lightweight prime minister whose shallowness has started to become evident to even the least accute.

Also right down to the private dinners followed by public acrimony and leaked slinging matches over the prime ministerial handover.

This whole soap opera has such an unoriginal script!

And until he got rolled for the next conservative seat warmer there was even a short guy called Howard in the conservative waiting room.

Never believe that a souffle never rises twice. Its so like de ja vu that for the next two prime ministers, my money is on:

Gordon Brown

Michael Howard.

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whats with this 'knife edge'?

It can only go one way now.

After all, as a nation we have collectively DOUBLED our debt in 6 years vs an original sum that took 600 years to accumulate, including 2 world wars.

Gorra pay it back kiddies. No rich uncles to bale us out!

Can it only go one way?

The treasury is not out of options yet.

Option 1. Allow things to take their natural course. However, a credit crunch and house price crash will bring the country to its knees and ensure that Labour remain out of office for a very long time. That is therefore "no option" for a New Labour government obsessed with its legacy.

There is an alternative.

Option 2. The treasury gives the BOE a mandate to reduce interest rates to "emergency levels, to prevent a serious recession". The masses struggle on. The Pound sinks, but hey, inflation rises, so the "real" level of indebtness begins to fall. Taxes rise and the chancellor (who ever he is by then) continues to borrow like no tomorrow. Public spending keeps people employed - New Labour returns to Old Labour.

So what will the New Labour legacy be? Aware that people tend to more vividly remember single terrible events, rather than longer drawn out ones. I think they would avoid the "Short, Sharp, Shock" at all costs.

I know this rather looks like a "they wont let it happen" type scenario. But remember how easily Gordon Brown was able to completely con the electorate, and move the goalposts on much his trumpeted "Golden Rule".

No one really complained. In fact, apart from a few dissenting voices in the press, the masses just ignored it.

I for one do not underestimate the underhandedness that this government is capable of. And moreover, I would never underrate the ability of the electorate to fall for it.

Edited by Flash

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Its so like de ja vu that for the next two prime ministers, my money is on:

Gordon Brown

Michael Howard.

I hope your real money isn't on that. Good post slightly let down by the last line there. You don't watch the news much do you? Michael Howard?

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It is becomming VERY noticeable that practically every time you hear the news in Australia there's some politician talking up the economy. The PM and state premiers are all at it with the state premiers in particular already denying claims of economic weakness.

I've lost count of just how many times John Howard has used the words "Australia's strong economy..." in the past two weeks alone. No matter what happens, and the latest was the 12,000 jobs going at Telstra (Oz phone company), the Prime Minister comes out and says all will be well "because Australia has a strong economy".

The mere fact that politicians are so enthusiastically talking up the economy is proof enough for me that all is most certainly not well. It looks very much like an attempt to encourage consumers to spend and keep confidence up.

Looks like a recession on the way to me. Big job cuts are starting, unemployment is up, house prices are looking weak in those states which have lead the boom and so on. Even one of the major banks was talking about Australia being at the end of the economic expansion cycle.

Whilst the timing might have been out a bit, practically everything predicted by those expecting a house price crash is, slowly, falling into place in Australia. As for the other countries, it's a question of timing IMO.

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The US market may also be one to watch over the coming year as well.... remember that IR's in the US tend not to have as much impact on the housing market, due to fixed rate... but this story makes an interesting read.

Seem like more balanced reporting than the VI spin we can be spoon fed here sometimes!

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Can it only go one way?

The treasury is not out of options yet.

Option 1. Allow things to take their natural course. However, a credit crunch and house price crash will bring the country to its knees and ensure that Labour remain out of office for a very long time. That is therefore "no option" for a New Labour government obsessed with its legacy.

There is an alternative.

Option 2. The treasury gives the BOE a mandate to reduce interest rates to "emergency levels, to prevent a serious recession". The masses struggle on. The Pound sinks, but hey, inflation rises, so the "real" level of indebtness begins to fall. Taxes rise and the chancellor (who ever he is by then) continues to borrow like no tomorrow. Public spending keeps people employed - New Labour returns to Old Labour.

So what will the New Labour legacy be? Aware that people tend to more vividly remember single terrible events, rather than longer drawn out ones. I think they would avoid the "Short, Sharp, Shock" at all costs.

I know this rather looks like a "they wont let it happen" type scenario. But remember how easily Gordon Brown was able to completely con the electorate, and move the goalposts on much his trumpeted "Golden Rule".

No one really complained. In fact, apart from a few dissenting voices in the press, the masses just ignored it.

I for one do not underestimate the underhandedness that this government is capable of. And moreover, I would never underrate the ability of the electorate to fall for it.

I think GB will go for option 2 - I don't know if or for how long he will get away with it but he will try for a little longer yet.

The end result, of course, will be a disaster - a long, slow painful disaster.

God help us

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If the UK Treasury think they can inflate their way out of the debt bubble they must anticipate a substantial rise in incomes to maintain existing living standards. This inflationary policy might have worked in the 70’s when the UK had a major industrial base and substantial oil and gas reserves but in a global economy UK workers are competing with cheap as chips Chinese and Indian workers for markets, raw materials and energy.

The manufacturing sector is important for the future of the UK economy, sacrificing 150 years of industrial heritage for the sake of maintaining an unsustainable shopping binge is sheer madness.

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I actually believe that there are several senior Liebour figures who, having grown up and got their political founding in the Unis and Polys of the 1970s, would not only welcome a housing crash but would do whatever they could to bring it about if they could be assured of staying in power.

Now, before you say I have gone nuts just think about this - what is going on in the UK currently is a massive resocialising of the UK. Businesses are being weighed down more and more with red tape, many are not making profits and the numbers of small businesses, usually run by middle class types, are going bankrupt. I would not advise anyone to start up a small business now and I have no doubt that business taxes will increase in the next 4 years under Liebour.

You have an enormous increase in the number of public sector workers - 6 in 10 people in Wales work in the PS - and their salaries are now outstripping the private sector... then there is the issue of pensions. Private sector pensions have been effectively 'stolen' whilst the public sector have their rights enshrined in stone it seems.

You could almost say that we are being turned into a socialist workers 'paradise' by stealth.

Oh, and big brother is watching us by tens of thousands of cameras.

There are some striking parallels between what we are experiencing now and what happened in Britain in the early 1970s. Back then investors had nowhere to hide, and Britain was brought to its knees. The UK stock market crashed by two-thirds, inflation let rip to reach 26% and the country became literally ungovernable.

Could it happen again? You cannot afford to be complacent.

In 1971 the Conservative Prime Minister, Edward Heath, decided to embark on a dash for economic growth. His concerns about the consequences of rising unemployment were focused on the imminent closure of the Upper Clyde Shipbuilders yards. The local Chief Constable, David McNee, warned the cabinet that violence on the scale then becoming familiar in Northern Ireland was a real possibility. In the event, the shipyards were 'rescued' with public money, the 1972 budget was a giveaway and money supply growth went through the roof.

Part of the reason money supply growth skyrocketed was due to a change in legislation in May 1971 known as Competition and Credit Control. The aim was to no longer ration credit but to let the price mechanism do the job.

So where did this money end up? Well, it spawned a boom in share prices followed by a speculative frenzy into property. The FT Industrial Ordinary Index of shares climbed by 65% in the year to May 1972. This turned out to be the peak in the equity market. Asset price buoyancy in the rest of 1972 and during 1973 was instead most marked in real estate. Both residential and commercial property registered enormous price increases, at a pace never recorded in UK peacetime history.

Sounds like self certs to me! :o

http://www.moneyweek.com/article/1446/inve...s/fsl-1970.html

Edited by The Masked Tulip

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It is becomming VERY noticeable that practically every time you hear the news in Australia there's some politician talking up the economy. The PM and state premiers are all at it with the state premiers in particular already denying claims of economic weakness.

I've lost count of just how many times John Howard has used the words "Australia's strong economy..." in the past two weeks alone. No matter what happens, and the latest was the 12,000 jobs going at Telstra (Oz phone company), the Prime Minister comes out and says all will be well "because Australia has a strong economy".

The mere fact that politicians are so enthusiastically talking up the economy is proof enough for me that all is most certainly not well. It looks very much like an attempt to encourage consumers to spend and keep confidence up.

Looks like a recession on the way to me. Big job cuts are starting, unemployment is up, house prices are looking weak in those states which have lead the boom and so on. Even one of the major banks was talking about Australia being at the end of the economic expansion cycle.

Whilst the timing might have been out a bit, practically everything predicted by those expecting a house price crash is, slowly, falling into place in Australia. As for the other countries, it's a question of timing IMO.

Agree 100%, and all this will happen just after these criminal Industrial Relations laws come into effect, screwing the working class and the poor even more.

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The Pound sinks, but hey, inflation rises, so the "real" level of indebtness begins to fall.

Sigh. Why do people keep making this claim?

Inflation effectively _INCREASES_ the "real" level of indebtedness, as the money you have available to waste on paying interest on debts drops when you're paying more and more for essentials. It only reduces indebtedness when _WAGES_ inflate.

Trashing the pound is not going to lead to much wage inflation when most jobs can be done in China for $0.50 an hour. Very few people outside the government have any pricing power for wages these days, and if the productive people don't see wage rises to compensate for higher taxes, the government employees won't either.

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Trashing the pound is not going to lead to much wage inflation when most jobs can be done in China for $0.50 an hour.

Manufacturing jobs - yes, Service jobs - no. Even with manufacturing, if you have valuable intellectual property YOU WOULD BE MAD to outsource to China. They will take it - it doesn't matter how much patent protection you think you have. I know many companies that have steered clear of outsourcing to China for this reason.

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Manufacturing jobs - yes, Service jobs - no.

The service jobs which haven't been exported appear to be increasingly staffed by Eastern Europeans who are probably on minimum wage (or less).

Even with manufacturing, if you have valuable intellectual property YOU WOULD BE MAD to outsource to China.

Go bust now if you don't, maybe go bust later if you do: your choice.

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whats with this 'knife edge'?

It can only go one way now.

After all, as a nation we have collectively DOUBLED our debt in 6 years vs an original sum that took 600 years to accumulate, including 2 world wars.

Gorra pay it back kiddies. No rich uncles to bale us out!

Well said!!!!!! Spot On!!!

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I hope your real money isn't on that. Good post slightly let down by the last line there. You don't watch the news much do you? Michael Howard?

Not being Australian you very reasonably missed the significance of the souffle reference.

In 1987 Paul Keating (the Treasure - thats a Chancellor to you) uttered the immortal words in relation to John Howard who had already won and lost the opposition leadership once, "A Souffle never rises twice". That damn souffle ... (and I left the country!)

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Paul Keating is still wheeled out every now again for his economic pronouncements - which invariably seem to come around to boasts as to what a great job he did when he was in charge

I don't know how you feel about him (everyone else in Oz seemed to think he was too arrogant), but I loved Paul K! Being in my radical phaze at the time I didn't appreciate the wisdom of letting corrections happen (do now!!! amazing what insight the cold hard reality of a housing bubble delivers), so I wasn't too keen on him as a Treasurer, but I thought he was a brilliant prime minister. Totally off topic. Totally out of state. Don't care. This is my ode to the best labour prime minister and treasurer in any country in the last 30 years. GB, take a look.

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Someone I work with is of the same opinion, although to Poms Keating will always be the "lizard of Oz"

Oh come on! How many world leaders haven't given the Queen a squeeze? Its not like he grabbed her butt or anything. I saw George Bush do exactly the same thing when he was over, I saw someone doing it to Camilla in the US coverage, blimey they've all come over cuddly now... and Paul Keating was leading the way (once again, before his time!)

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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