Tag Archives: FHBG

Australia Only OECD Nation With Rising Debt

11 Mar

From Marketwatch:

Australia’s seemingly bulletproof economy could soon face fallout from high debt levels and purportedly misguided policies designed to pump up asset prices, according to an outspoken skeptic of the nation’s housing boom.

Economist Steve Keen of the University of Western Sydney, who claims* to have accurately foreseen the global financial crisis, said he’s been dismayed by what he sees as a growing nationwide housing bubble stoked by government efforts to forestall economic pain.

Keen points to a first-time homebuyer subsidy program, various other stimulus programs, and a 4-percentage-point reduction in interest rates — policies introduced in the wake of the 2008 crash and which he termed “The Boost” — as having helped fueled a new housing boom and a 6% rise in mortgage debt last year.

“The Boost has … given Australia a dubious distinction when compared to the rest of the OECD. Yes, we are the only country that avoided a technical recession; but we are also the only country where debt levels are rising once more compared to GDP, rather than falling” …

*Proof of Professor Keen’s “claim” can be independently verified in this research paper, which references a handful of economists who did predict the GFC in advance.

UPDATE:

On April 15th through 23rd, I will be joining Professor Keen in his 230km “Keenwalk” from Parliament House to Mount Kosciuszko, in protest against Australia’s property mania that has been driven directly by insane – and in my personal opinion, immoral – Federal Government and RBA policies.

Please consider joining us, for the whole trek or even just for an afternoon section of the walk.

If you’d care to assist a genuinely worthy cause, then please consider sponsoring Professor Keen, or indeed myself. Funds raised will support the wonderful charity Swags For Homeless.

Thanks!

Tanner Lies About Budget, GFC

11 Mar

Finance Minister Lindsay Tanner has demonstrated yet again that he is a liar and a fraud:

Lindsay Tanner today accused the Opposition of punching a $2 billion hole in the budget after it helped defeat a means test on the private health insurance rebate last night.

“Tony Abbott and the Liberal Party are blocking almost all the government’s major initiatives in the Senate these days,” Mr Tanner told ABC radio.

“We faced a huge budget problem as a result of the global financial crisis. We have to repair the damage to the budget and we have to get the budget back into surplus as quickly as possible.”

“Yet he’s punched a huge hole in our savings initiatives that are designed to get the budget back into surplus quickly.”

In a recent column for the Sydney Morning Herald, ironically and hypocritically titled “Dishonesty in the debt debate”, Lindsay Tanner wrote:

Why are we going into debt?  Because the global financial crisis punched a huge hole in our projected revenues, and forced us to act to support the economy and to sustain jobs.  Had we just sat back and watched, as our opponents seem to suggest, we would have seen unemployment rise dramatically.  That would have reduced tax revenues even further, and thus pushed us into deficit anyway… The Rudd government had no choice but to intervene to protect Australian working people from the ravages of the crisis.  The dishonest campaign about debt being prosecuted by our opponents should be seen for the fraud it is.

Tanner’s claim that the GFC “punched a huge hole” in the government’s projected revenues, is an outright lie. And I will prove it to you, from the government’s own Budget documents.

The real reason that Rudd Labor faces a “huge budget problem” is not a result of the global financial crisis. Instead, it is entirely a result of their panicked, monumentally incompetent response to the idea of a GFC.

The simple fact is this: Contrary to Tanner’s recent claim, and Labor’s shrill proclamations throughout 2009, the GFC barely affected Australian government revenues at all. The “huge budget problem” is entirely of the Rudd Government’s own making. Because their team of uneducated economic illiterates panicked, and went on a massive, unnecessary spending binge. And now they are lying to cover up that fact.

Want proof?

Take a look at the Government’s 2009-10 Budget, Statement 10, released in May 2009.  It shows that Government income (“Receipts”) was estimated to be down by just $7.8bn (2.7%) on the previous year –

Continue reading ‘Tanner Lies About Budget, GFC’

Home Loans Slump Most In A Decade

10 Mar

From the Sydney Morning Herald:

The number of home loans plummeted by 7.9 per cent in January, the biggest fall since June 2000, after the phasing out of last year’s first-home buyers’ grant boost and interest rate rises sapped demand.

January’s result follows a revised 5.1 per cent drop in December, the Australian Bureau of Statistics reported, citing seasonally adjusted figures. Economists had been predicting a 2 per cent increase in January.

As usual, over the “long run” we again see that the predictions of mainstream economic “experts” are wrong.

This result underlines what contrarian economists such as Professor Steve Keen have been warning for several years.  That the government and Reserve Bank of Australia have, together, fuelled a massive bubble in property prices.  Rudd Labor’s doubling of the First Home Owners Boost, and the RBA’s slashing of interest rates in late 2008, have encouraged tens of thousands of borrowers to take on ever greater levels of debt. In the process, these buyers armed with cash handouts from the government and tempted by record-low interest rates, have bidded up the already record-high prices of Australian real estate.

Now that the FHOB has been withdrawn by a debt-laden government, and interest rates are beginning to rise, immediately we see a dramatic fall in demand for the loans that support Australia’s unprecedented housing bubble.

Rain For Henry, Stevens’ Parade

5 Mar

From Business Spectator:

Today’s commentary is all about lessons learned and not learned in the GFC.

ABARE has rained on the commodity bulls’ parade with forecasts of falling commodity prices in the medium term, and a falling dollar from next year. This is no surprise to this column, which has argued consistently that the prices of the last cycle will not be repeated because that cycle’s global building boom – from Shanghai to Dubai – was a once-in-a-lifetime event, characterised in the worst cases by massive empty buildings. Mine supply has also now caught up.

The commentary then goes on to critique Michael Stutchbury’s recent article regarding the Australian housing bubble:

Heavens to Betsy. This column will simply observe that house prices reached unprecedented multiples of income in the last cycle and are now threatening to go higher still. And even in Stutchbury’s own terms the boom is based upon easy money – this time fiscal – the First Home Buyers’ Grant (FHBG). We might also note that it was coupled with the lowest cost of mortgages in fifty years. Let’s call a spade a spade. The FHBG was, in the long run, a calamitous policy. It has re-inflated the great Australian housing bubble, underpinned it with moral hazard and badly compromised monetary options… A historic opportunity to de-risk the Australian economy was missed.

If we learned anything form the GFC it is not to trust financial advice, and John Durie of The Australian analyses where new regulation to protect small investors is headed. “Myriad studies have revealed that 50 per cent of Australian adults don’t understand what 50 per cent means.

Britain Grapples With Debt of Greek Proportions

5 Mar

From the New York Times:

Suddenly, investors are asking if Britain may soon face its own sovereign debt crisis if the government fails to slash its growing budget deficits quickly enough to escape the contagious fears of financial markets.

“If you really want a fiscal problem, look at the U.K.,” said Mark Schofield, a fixed-income strategist at Citigroup. “In Europe, the average deficit is about 6 percent of G.D.P. and in the U.K. it’s 12 percent. It is only just beginning.”

Since the Labour government’s intense fiscal intervention in 2008 and 2009, yields on British government debt have soared to among the highest in Europe. And on a broader scale, which includes the borrowing of households and companies, the overall level of debt in Britain is the second-largest in the world, after Japan’s, at 380 percent of the country’s gross domestic product, according to a recent report by the consulting company McKinsey.

Britain is not in the 16-nation euro zone and, unlike Greece and other struggling countries that use the currency, it retains control over its monetary policy. As a result, it has benefited so far from a huge bond-buying program undertaken by the Bank of England — proportionally, the largest in the world — that has kept mortgage rates and gilt yields at unusually low levels.

That means the government and its citizens have been able to continue to borrow at interest rates that do not reflect their true financial situation.

Indeed, the increase in private and government debt here contrasts sharply with the deleveraging that has been going on in the United States.

British household debt is now 170 percent of overall annual income, compared with 130 percent in the United States. In an echo of the United States’ rush into subprime mortgages with low teaser rates, millions of homeowners in Britain have piled into variable-rate mortgages that are linked to the rock-bottom base rate.

As for the British government, it has been able to finance a budget deficit of 12.5 percent of G.D.P. — equal to Greece’s — at an interest rate more than two full percentage points lower only because the Bank of England bought the majority of the bonds it issued last year.

Sound familiar?

In Australia, household debt is over 150 per cent of income. And in an echo of the British rush into US-style sub-prime mortgages with low teaser rates, some 250,000 homeowners in Australia have piled into variable-rate mortgages that are linked to the rock-bottom base rate, until recently the lowest in 50 years. Many highly ‘marginal’ borrowers who could not previously even raise a deposit, were lured into mortgage debt by the Rudd Government’s First Home Owners Boost, plus additional state-based grants.

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