RBA Governor Glenn Stevens Reveals Intention to Raise Interest Rates to Normal Levels

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Well you have to give RBA governor Glenn Stevens credit (no pun intended). He is no Alan Greenspan. He got on the idiot box yesterday and told anyone who would listen that speculating on house prices is crazy. Specifically he said that, “I think it is a mistake to assume that a riskless, easy guaranteed way to prosperity is just to be leveraged up into property. It isn’t going to be that easy.”

There are two reasons why it’s not going to be easy, although we don’t speak for the governor. The first is that he pretty clearly telegraphed his intention to raise interest rates to what the RBA considers more “normal” levels. “We can’t assume rates will remain low,” he told Seven. “The relationship between the cash rate and what they pay for mortgages or small business loans is what we think is useful.”

Useful for what? For predicting where mortgage rates are headed. And that would be higher if the relationship between the cash rate and mortgage rates persists. “If you look back when the economy was stable and we had low inflation, the cash rate, that is the rate we decide on, the rate has been in the average of 5 per cent.”

So if Stevens thinks the economy is pretty normal now with low inflation, then you’d expect the cash rate to rise from 4% now to at least 5% by the end of the year, beginning as soon as April 6th when the RBA meets again to rig the price of money (we mistakenly said they meet today in yesterday’s edition.) In February, Stevens said there was a good chance rates were headed up in the first half of this year.

When the man who sets interest rates tells you that you’re rising, it would be wise to at least hear him out. Whether you take him at his word is up to you. But if you’re making financial plans – say, like you’re going to buy a house and are trying to figure out if you can stand a few extra points rise in the interest rate – the man has told you what is going to happen.

Of course there is the chance, mentioned last week, that bank interest rates have decoupled from the cash rate. This was the possibility raised by NAB execs when they said Australia’s dependence on wholesale borrowing from overseas meant that the foreign cost of capital would determine the local cost of capital, not the RBA’s price for money. We’ll see about that.

In the meantime, Stevens has also said the RBA is watching whether or not “the role of foreign purchases [in the Australian housing market] is an important one.” We’d submit that it is. This is the second reason it won’t be “easy” for Australians to get risklessly rich in leveraged property investments. They’ll be outbid!

It’s obvious now that the Rudd government has opened the Australian property market wide open to overseas investors in order to keep the housing market bubbling along. The stamp-rich gorging state governments have not objected. The end result is a huge spike in prices that locks out Australians hoping to enter the market at the bottom end of the property ladder.

Some people might call this the government selling-out the interests of its citizens in order to prevent the bubble from popping on their watch. In fact, we just muttered that aloud to ourselves. And we’re not even Australian. But as an American, we’ve seen these desperate attempts to keep the good times rolling before. It always costs the little guy the most.

To be fair, there isn’t much data yet on how much of last year’s national price surge was fuelled by foreign buying. And let’s face it. By “foreign,” most of the media accounts mean Chinese. And you know, from a Chinese perspective, buying real Australian houses with money not subject to Australian interest rates is probably a great investment.

But whether it’s such a good thing for Australians depends on who you ask. If you’re a Baby Boomer with 3.6 investment properties that you’re counting on to fund your comfortable retirement, the influx of cashed-up foreign buyers is just what the doctor ordered. If you’re a first home buyer…well…you’re going to need a bigger grant…or be willing to live in an outer suburb…or rent for the rest of your life.

Can you see now that we have the confluence of two bubbles? The first is Australia’s fevered national pastime of speculating on property. It’s all good as long as it’s making someone – property spruikers or investors – rich. But what if it makes the Chinese rich? And what if the Chinese investment in Australian property is itself a product of China’s massive lending bubble?

As always, all bubbles come back to excessive credit growth. You have to prune away at the flowers these bubbles are decorated with. They make it look pretty, desirable, and natural. But beware!

In a great article we read over the weekend by GMO’s Edward Chancellor we found this quotation from 19th century economist John Mills: “Panics do not destroy capital; they merely reveal the extent to which it has previously been destroyed by its betrayal in hopelessly unproductive works.”

Has Australia over-invested in higher house prices at the expense of other national investment and productive possibilities? Let us know what you think at dr@dailyreckoning.com.au

And if you think we’re making up the idea that China has exported its property bubble to Australia, well, that’s alright. Free thinking is encouraged here at the Daily Reckoning. But according to today’s Wall Street Journal, “China’s banking regulator banned new property loans to 78 companies owned by the central government in an effort to control risks in property credit and curb asset bubbles, which pose a threat to the country’s strong economic recovery.”

Urban property prices rose 11% in February compared to the same time last year. In fact, there’s a way of seeing the performance of the entire commodity sector – and by extension Australian resource stocks – as a function of China’s retreat from the U.S. T-bill market and into tangible asset markets like copper, iron ore, coal, and high-rise flats in Melbourne.

We’re taking these concerns and questions to a meeting in an hour with Diggers and Drillers editor Alex Cowie. Alex sent us a note yesterday that one of his gold stock recommendations has nearly doubled. But he hinted that there are some decisions he’s made regarding the rest of his recommendations. He’ll share those with D&D readers when he’s made them. But tomorrow, I’ll let you know what he thinks about the big picture and the China risks highlighted above.

Until then…

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. “If you look back when the economy was stable and we had low inflation, the cash rate, that is the rate we decide on, the rate has been in the average of 5 per cent.”

    Does RBA Chief Stevens mean the time when the price of gold, oil & most (if not all) other commodities, housing, ASX, etc, etc was on its multi year tear to all time highs?

    Is that what he means by a ‘stable economy & low inflation’, a loose money inflationary boom? Forget the cash rate, the RBA was raising it the whole period from May 2002 until August 2008.

    Stating an ‘average’ cash rate is also disingenuous, the cash rate has fluctuated between 3% and 7.25% since at least 1999.

    Reply
  2. When the governor says that speculating on house prices is crazy.

    You know its going to all come crashing down soon

    Reply
  3. We all know that members of Central Banks are only good at pointing out bubbles or problems in economies until it is well and truly too late. They have no ability to see bubbles rising and warn before things become too bad.

    Reply
  4. Dan,

    Love your site and read it regularly. ONe small point, only 3.7% of personal investors have more than 3 properties. Fully 72.5% of property investors only hold a single property. Note, I don’t say own, because half are paying interest only loans.

    It doesn’t change the thrust of the argument one iota, of course.

    Reply
  5. To look at this scenario and assume that by raising interest rates we are going to see housing prices fall or crash is dellusional. I am 30 and have been priced out of the market for years, even i can see that nothing will change even if they raise the rates to 17%.

    According to most of the relevant agencies data, at least 30% of the market going to auction within 20km of the city is to foreign investors. I even have an older friend who lives in Glen Waverley who looks out her window to 2 houses on the other side of the road that have been purchased and then land banked by asian (presumably chinese). As someone pointed out China has 1% of its population in the millionaires club, thats 11 million people who can buy and keep buying our property until we are priced out and then they can rent it back to us at whatever price they feel they can get.

    They did it in Singapore and have made it literally impossible for even most high wage earners to buy an average apartment there. They either buy a government house or rent for life.

    As a nation we are stupidly blinded by greed to allow this FI to occur, very short sighted fora lot of long term pain.

    Housing is now outside of the control of Glenn Stevens he can raise rates all he likes he will just be punishing those currently in debt even more. Hu Jin Tao (if thats how you spell it?) and his comrades now have the say and as long as they are allowed to buy what is our soverign land then we can forget about ever having any normalcy in out housing market.

    Thanks Kevin Dudd, if you like yum cha and speaking the native tongue then bugger off to beijing because your little obsession with the yellow man is doing no one, not even yourself any favours. China will take you in, chew you up and then spit you out on the pavement when they have sucked from you what they can.

    To think china are not actively involved in buying property here themselves is also very niaive. They would realise how fundamental housing is for an culture, our reliance on it’s appreciating has put us in a weakened position long term i think we will realise how much power we have given them and how much we have lost by allowing this to happen uncontested.

    As a nation and a culture we are so infantile it’s almost embarrassing

    Reply
  6. Bier Pete have you sold any of your properties yet?

    Reply
  7. No, I’m a Bier. :)

    Biker Pete
    March 30, 2010
    Reply
  8. Still,
    The other day you said you were thinking of selling some of them, If thats the case then obviously it must be a bad time for me to buy, hopefully other people in your situation are starting to think the same way as you, that will flood the market
    I am also starting to get excited with all these interest rate rises.

    Reply
  9. Steve, it’s _never_ a good time for you to buy. ;)
    A good time for me to _sell_, however, is when interest rates reach 10%.
    If you go back through my posts, you’ll see that I conjectured I could live quite ‘comfortably’ on the interest… .

    Biker Pete
    March 30, 2010
    Reply
  10. Steve, it’s _never_ a good time for you to buy.

    Why is that???

    Reply
  11. Living at home with parents is what family is all about. As your mum and dad age, you’ll be able to provide not only care, but continual love and support.

    It’s also cheaper, but that’s a minor consideration in the big picture.

    My Generation (Who!) was much more selfish and uncaring. We fled the nest at the first opportunity. No values of respect at all. Independence was all we thought about. Rock ‘n’ Roll… . As soon as we understood grammar (not sure if I ever _really_ understood her) and punctuation, we were off. Never looked back.

    Biker Pete
    March 30, 2010
    Reply
  12. Another smart ass remark

    Reply
  13. Deeply shocked, Steven! You thought I was TTP?
    Look, I’m giving you an extra star, on your ‘crashing down’ comment.
    Now you’re a Five Star General! :)

    Biker Pete
    March 30, 2010
    Reply
  14. No, it didn’t work, sorry. But I _did_ try… .

    Seriously, on the issue of buying now, I don’t think it’s a good idea.
    Your current living costs are very low, giving you the ability to save rapidly.

    You clearly believe there will be a crash… and when that day comes, you’ll buy a heavily discounted house, close to the ocean or CBD and be glad you didn’t camp out or rush in where angels fear to tread.

    Biker Pete
    March 30, 2010
    Reply
  15. 1) To look at this scenario and assume that by raising interest rates we are going to see housing prices fall or crash is dellusional.

    2) I am 30 and have been priced out of the market for years, even i can see that nothing will change even if they raise the rates to 17%.

    3) According to most of the relevant agencies data, at least 30% of the market going to auction within 20km of the city is to foreign investors.

    4) Housing is now outside of the control of Glenn Steven

    5) To think china are not actively involved in buying property here themselves is also very niaive.

    Realist.. I have Numbered 5 points you raise in your post and will post my opinion on your views…

    1) If rates get to high people will be forced to sell simply because of the high debt levels.. FHB’s over commitee being the first likely victims,
    then over leveraged investors that bought in similiar areas.. as you highlight later in your post, Foreign investment (Chinese) are looking at closer
    areas of Melbourne within 20 klms of the CBD They are not interested in the outer regions 25 to 40 k’s out.

    2) 17% Mortgage rate on a 300k mortgage is over 50k a year in interest alone.. a large proportion of buyers can not afford that sort of repayment..
    Investors with multiple homes could well be in the same boat, maybe worse a) they could not raise the rents enough to cover the payments.
    Kids returning to the nest or sharing accomodation would increase significantly.. shortage of renters.. Read an article recently that
    multi generational residents are up 30% in the United States due to the housing crises..

    3) Just talking Melbourne but there was 1000 houses approx up for auction this weekend past.. be generous and say 600 were in the 20klm radius
    of Melbourne CBD.. 30% is 180 homes to foreign buyers out of 1600 sold (Auction and Private Sales) so yes it is a problem but it is not yet significant
    and limited to specific suburbs…

    4) Housing was never in the control of Glenn Stevens (RBA) Housing is effected by RBA moves but it is not “controlled” by them

    5) No doubt foreigners (Chinese) are buying property but it is a localised issue at the moment, the selling of of rescources to China
    is a far more long term issue for Australias economy than the realestate issue.. Red tape could be cut to release more land and build more houses,
    we sell the geese that lay the golden eggs to China and we lose revenue for the future.. revenue the country will need with a growing/ageing population

    Stillgotshoeson
    March 30, 2010
    Reply
  16. Good advice I will do just that.

    It seems The president of Australia’s peak real estate industry body isnt too happy with the governors sensible remarks HAHAHAHA

    http://www.businessday.com.au/business/rbas-housing-comments-stun-real-estate-chief-20100330-raxn.html?comments=11#comments

    Reply
  17. You’ll be out of that little bedroom in just a few months, Steven. Bet you can already taste the tangy sea breeze of Clovelly… .

    Biker Pete
    March 30, 2010
    Reply
  18. Ohh no I don’t expect Clovelly, I am surprised you would even know where that is being a sandman, because hardly anyone here knows anything about over there its almost like another country wa.

    Just an average suburb or even a bit below average suburb (that isnt too bad) would do me fine

    Reply
  19. I crew an S&S34 whenever I’m over there, Steven. We’ve made a lot of trips east, including five weeks’ biking. We have good friends living ‘on the beach’ in Sydney… poor devils. They won’t be happy to learn their homes will be underwater when the Red Revolution comes… .

    Your main issue will be being trampled by the Shoes of this world, whose assets will eclipse most competitors. And, at last count, there are lots and lots of Shoes… . :)

    Biker Pete
    March 31, 2010
    Reply
  20. I fully welcome our new [s]US[/s] [s]NAFTA[/s] [s]ZIONIST[/s] CHINESE OVERLORDS!

    Reply
  21. Good article. A small point though – the 19th century economist you quoted is John Stuart Mill not John Mills who is an actor. Mind you most economists these days are actors reading from a very bad script.

    Tony Scott
    March 31, 2010
    Reply
  22. STILLGOTSHOESON : I hear what you are saying but how do we know what portion of the private sale numbers are foreign investment. I would think that they to would be making up a far portion of these sales but (for whatever reasons) the only results we ever get is the weekend auction results.

    This is a bigger problem than we care to admit or maybe even know, there is a street in Balwyn (inner eastern Melbourne) that was on all the new stations last week as being over 80% owned by foreign investment as if it is something we need to accept and even rejoice. It is a disaster and i must admit i heavily regret giving my vote to labour in 2007. All Rudd has done is replace a small bit of pain (maybe a 20% correction) with a scenario that rewards a few but will punish thousands for many generations to come.

    It’s reminiscent of the CityLink project here in Melbourne, the Transurban corporation borrowed the 2.1 billion from overseas investment. They put in the toll roads and get a 36 year contract with no restrictions on what they can charge. Based on the original charges they had in the first 12 months they were on track to earn back the original outlay in 10 years, given the charges have more than doubled today i would think they would have this money back already. As a state we opted to allow Transurban to take the short term pain for a MASSIVE long term benefit at our expense.

    Rudd the Dudd has done the exact same thing here. Brumby is no different, he is so f$%king arrogant it is painful to watch, he has his very wealthy mates in big business and development who tell him that the concept of stuffing thousands and thousands of immigrants into the state is a good thing and those who whinge are lazy good for nothings that are the problem with the state. You would vote him out in a heartbeat but what’s the alternative, Ballieu who’s family earned it’s 100’s million in property investing.

    Again this is symptomatic of a society who just doesn’t care, we elect people and hold them accountable for NOTHING, whinge but never take action (myself included).

    The 17% is unrealistic but even at 8-10% all they are doing is hurting the people who need help the most and again open the doors for foreigners to swoop in and buy up our sovereign land. The best part is they are able to lease it back to our citizens at whatever price they can, again punishing us for the benefit of another nation.

    As for Glenn Stevens (and the RBA) not controlling this, I’m not so sure, he may feel a little different as he was only recently on national TV telling everyone of the perils of over heating the market (although for the average Australian it is now burning) so he may believe and gives the image of having some form of control with their ability to raise rates.

    And yes, you are spot on, the resource prostitution is another very scary issue. A very short term benefit for what is a long term problem but with the expected 20 years of growth most of these pollies will be dead, lived great lives and couldn’t care. I’m sure thought when we start to run out of resources and our property begins to devalue we will see the true relationship we have with China as the spit us out on the pavement and carry on to the next victim.

    Reply
  23. I also need to add:

    GROWTH FOR THE SAKE OF GROWTH IS A LOOMING DISASTER!!

    I could explain this to a 10 year old and he understands but the wider adult community can’t seem to grasp the concept as the greed has blinded them from what is the inevitable outcome. By pumping in 100,000’s of immigrants to buy homes and more produce and clothes etc etc just prelongs the crash for another 2, 5, 10 years it does not make it go away.

    The reality is this nation in it’s current form is unsustainable if it is haevily reliant on the constant extreme flow of immigration. I think we fail to see that the current demand in growth of jobs, housing and transport have been caused SOLELY by the massive intake of immigration.

    It is self defeating, the more you pour in the more you need and it just keeps going and going and going. When it stops though the hurt will be intense, we can function as it is but you can bet that they will keep pouring in 100,000 more this year but we need to take a step back and realise that if we close the borders off today and only replaced the ones who left or who have died (one in one out theory) i think you would find the nation would have massive unemployment, housing oversupply and a system that is devoid of any real sustainable growth.

    We are inflating the demand artificially and will regret it in time to come.

    Reply
  24. As a senior who will never, ever receive a cent from an old age pension, or any health or medical benefit, I can point out without accusations of personal gain, that OAPs will quickly drain Australia’s financial services, if immigration slows. As many have noted here, not only do the Baby Boomers represent a very large voting block for the next two decades, most are financially unprepared for retirement.

    It may be unrealistic to argue that it’s their problem and we should “Let them starve!” when they’ve not only contributed taxes for 40+ years, but will also _change governments_ with their votes… perhaps for the next 25 years… . ;)

    Biker Pete
    March 31, 2010
    Reply
  25. I agree with you Realist but of course as you know the first job of any government is to get re-elected and hang onto power. So they are going to use any means to ensure that house prices remain high or growing rather than let through a significant correction. Although they can’t effect interest rates, they have shown that they can juice the market using the FHOG and now by relaxing foreign ownership rules.

    Betting on form means that this will continue and will only be ramped up in the face of any future crisis.

    Reply
  26. Shoes, is your MEL inner city Chinese direct property investment evidence based?

    The sledging of China by both sides of politics on RIO has not been evidenced based as presented in Australian public statements or mainstream media reports. Such sledging must be held to be “recalcitrant” in the face of the intent of the FCPA (Foreign Corrupt Practices Act).

    We have even had Australian government owned media referring to “baksheesh” as everyday activity in doing business in China and elsewhere (Virginia Trioli – ABC). And there is a defence against facilitation payments available under the FCPA but not on the basis where there is solicitation by foreign company representatives. And there is no claim by the Australian govt that these payments were not solicited by the individuals in exchange for manipulation of supply or that price consideration and capacity was not traded. And like you believe CBOT futures prices are made from perfect freely available inventory data and not from manipulation like that of the variable siloe storage fees on soft commodities or floating warehouse oil tankers!

    Australia’s focus in light of our record should be on FCPA compliance but the OECD report on Australian adoption of the FCPA makes it clear that the supervisor (incl Japanese and NZ panel reps) believe we are not doing enough. Our liberal fascist govt and body politic reaffirm that daily with their statements that push provocation ahead of denunciation of soliciting foreign corruption which in turn sinks to ever lower compliance regime awareness.

    Australian has sought to denigrate China declaring that an open trial for a matter involving state secret is a “right” when the person is a dual national and holds a foreign passport. Tell me again where that happens without sovereign discretion anywhere in the world (including in Australia) for a declared “official secrets Act” styled event? And the liberal party has pulled out an inane diplomatic convention that they charge publicly should have had China grant access (but know too that it is rubbish and not access to such a trial). So if it doesn’t pass Rudd’s or Bishop’s declared probity tests and we do have any r-e-s-p-e-c-t for foreign jurisdiction in any matter then the onus is on us to have evidence to the contrary.

    Until then we have a convicted felon who took bribes in exchange for “supply” from state agencies, and broke Chinese laws.

    And if we don’t caste it in terms of bribery, then we can look at the cartel cases run against international air carriers including our QANTAS and the SEC styled “disgorgement damages for ill-gotten gains” imposed on companies and prison sentences handed down to individuals on supply side plays (some of which had perfectly legitimate market sustainability & trade facilitating reason de’tre).

    What we might ask is what the scope of “unethical business activities” is in terms of Australia’s laws bringing us into line with the FCPA (Foreign Corrupt Practices Act) as described in

    http://www.oecd.org/dataoecd/57/42/35937659.pdf

    Or specifically :

    27. On 6 June 2005, a representative of the AFP told the examination team that it looked unlikely
    that one of the investigations would disclose any foreign bribery offences. He also confirmed that the AFP
    had consulted the Commonwealth Director of Public Prosecution (CDPP) for limited advice about one of
    the investigations and that the Attorney-General’s Department (AGD) had not been consulted in either of
    the investigations. On 24 June 2005, following the on-site visit, the Australian authorities informed the
    examination team that one investigation had been finalised without the identification of an offence of
    bribing a foreign public official. They further advised that information about this allegation had been
    forwarded to the foreign authority. The AFP determined, following the interview of a number of witnesses,
    that the complaint related to “unethical business activities” and not the offence of bribing a foreign public
    official. On 24 June 2005 and 14 September 2005, the Australian authorities confirmed that the other
    original investigation was still on-going.

    And perhaps Mr Kevin Rudd or Mr Tony Abbott or Mr Bob Brown might explain how our accession to the FCPA is complete when we have embedded the following loophole not applied by the US and other major countries.

    34 These areas were the following: (a) the definition of foreign public officials does not include employees of
    foreign state-owned or state-controlled companies; (b) the description of the offence does not include the
    case where the bribe is made through an intermediary, or for the benefit of a third party;(c) the description
    of the offence is limited to acts of Australian nationals and companies, and does not cover foreign bribery
    committed by non-Australian individuals and companies in Australia; and (d) the defence for “facilitation
    payments” is described as “rarely (if ever) available” (The problem raised by this statement is discussed
    further under part B.1.c.(ii).).

    But what we know of the Australia-China relationship is that our belligerence toward the Stern Hu process is all colour to the theatre that is the Fiji issue.

    Australia has made a mess of the Fijian situation and even the US has not been supportive of our approach. So just like we and many others made a mess of Sri Lanka the same is likely to happen with Fiji. And where else could the indigenous Fijians look other than to China? And what a fat lot of good it was having our most senior military commander phoning and threatening Bainimarama or yanking the colonial strings on the liberal fascist newspaper fraternity in Suva. As if some Paul Sheridan-like git is going to be tolerated …. If the undemocratic swill that is the Australian foreign affairs elits keeps going the way it has been all we will get is China-India going at it on our doorstep, or a mini Cuban missile crisis, or even a landed version of an aircraft carrier that far exceeds the capacity of the Chinese to project power than their floating versions ever could in the decades to come. It all started with our arrogance and we can only hope it isn’t too late to depose our recalcitrants and find some humility and decency that made the people to people side work in the past.

    Reply
  27. Oh and I forgot a link that might bring some lights on how we are respectfully conducting ourselves in China currently :

    http://www.news.com.au/business/more-aussies-charged-with-economic-crimes/story-e6frfm1i-1225847759759

    Reply
  28. Ross: “…property investment evidence based?”

    Admit I wondered the same about your DINKs comment a few days back, Ross.
    My own guess was upgraders, off the back of median sales… .

    Biker Pete
    March 31, 2010
    Reply
  29. Wow. Stevens is really getting emotional lately – anyone notice? Wonder what he knows that we don’t? OR perhaps we do? :)

    http://www.theage.com.au/business/god-not-to-blame-for-gfc-stevens-20100331-rcer.html

    Reply
  30. … same as Bernanke, with his candid, almost bored answers to Congressmen lately. It’s kinda like when you know there’s nothing that can be done and there is that gracious relaxation in acceptance.

    Reply
  31. Quote “that OAPs will quickly drain Australia’s financial services, if immigration slows. As many have noted here, not only do the Baby Boomers represent a very large voting block for the next two decades, most are financially unprepared for retirement.

    It may be unrealistic to argue that it’s their problem and we should “Let them starve!” when they’ve not only contributed taxes for 40+ years, but will also _change governments_ with their votes… perhaps for the next 25 years… . “End Quote

    Biker, from someone who turned 30 2 days ago i can tell you that his argument falls on deaf ears. What you are saying is we should keep immigration strong to support the health and retirement of people who have p##@ed up 40 years of exponential growth and created a system devoid of any real sustainability. How would you feel about bailing out Gen Y’s who have borrowed amounts they have no real way of paying back long term, would you feel comfortable with paying their mortgages and forego old age care just because they also vote.

    It’s another point that sickens me as i have slowly come to realise the system is so heavily skewed to the people at the top of the pyramid scheme that those on the bottom tiers (only because of when they were born) are destined to do things harder and harder for less and less for the benefit of those on the top of the pyramid. I think my generation will not allow this to happen to our children, if we can afford to have them.

    Retiree’s shouldn’t be left destitute but we need to pause and assess this system and it’s viability in the upcoming decades. Everyone is in this frame of mind where by the run at the easiest way out they are presented with and when that fails the grab at the next easy fix. No one wants to sit back and discuss exactly what effect these choices will have on you me our brothers, sisters friends etc as we move into the upcoming ears and decades.

    Baby boomers need to do the ethical thing and don’t run towards the easiest way, human nature has the ability to wain from being very generous to being extremely greedy. To allow 100,000’s of people to come into this country solely for the benefit of a retiring generation is showing the extreme greed side of our nature.

    You would happily do this knowing this would erode away the things you took for granted, healthcare, infarstracture, affordable housing and a maintainable community and economic model from Generation Y and younger. This is just so you can retire with the same or better lifestyle you have enjoyed for 40+ years is in itself sickening and a shining example as to why this country will decentigrate into a poor imitation of America, ‘greatest nation on earth’ as long as your not poor,a minority, living in low socio-economical area’s or on a minimum wage or both.

    We should now start saying “We are the lucky country………………………for some”

    Reply
  32. Comment by Realist on 31 March 2010:

    STILLGOTSHOESON : I hear what you are saying but how do we know what portion of the private sale numbers are foreign investment

    No figures are available, common sense dictates that it would be much lower than the Auction Rate.. Houses for Auction in Melbourne are more common within the 20klms radius of Melbourne CBD with Private Sales making the bulk of house sales outside the 20klms radius.. not to say that Auctions don’t occur outside inner Melbourne and Private Sales don’t occur in inner Melbourne but the ratios swap at around that region.
    Most foreign buying occurs in the suburbs of Universities.. and the ones that surround.. some also occur in the “high value” inner city market as well.

    “All Rudd has done is replace a small bit of pain (maybe a 20% correction) with a scenario that rewards a few but will punish thousands for many generations to come.”

    Could not agree more, the government should not have got involved and let market forces take there course. All the government has manged to do is keep inflating the ballon, it will be a bigger pop when it does finally go.. So we will have a worse correction than we otherwise would have and a huge public debt problem on top…

    “The 17% is unrealistic but even at 8-10%”

    I know 17% is unrealistic.. by the time they get past 10% the damage will be done pretty much.. My worst case scenario for mortgage rates through this is 13.5%.. anything above 10% will start the correction.. first hit those that bought in the last 18 months or so with only the grant as a deposit and no historical savings history.

    “As for Glenn Stevens (and the RBA) not controlling this, I’m not so sure, he may feel a little different as he was only recently on national TV telling everyone of the perils of over heating the market”

    I don’t see that as “control” I just see it as a warning….

    “And yes, you are spot on, the resource prostitution is another very scary issue. A very short term benefit for what is a long term problem but with the expected 20 years of growth”

    Labour did not inherit a surplus from the Liberals good economic management.. they were in power at the time of the greatest rescource boom Australia had seen.. We lose that rescource base to foreign investment and we are screwed for the future.. Tourism can’t support us, manufactoring is shrinking.. Agriculture may come good again with a growing world population and serviceable land running low…however resources are the countries golden geese and we are selling to buy back the eggs.. just crazy.

    As for the toll roads.. have to agree there too.. Can understand the need for roads to be funded, can not see how we have to pay 20 Billion Dollars for a 4 billion dollar road though, the government could have financed the road.. tolled it, pay the toll collection company a percentage and when the road is paid for remove the tolls

    Stillgotshoeson
    March 31, 2010
    Reply
  33. How would you feel about bailing out Gen Y’s who have borrowed amounts they have no real way of paying back long term, would you feel comfortable with paying their mortgages and forego old age care just because they also vote.

    When the market does correct this is exactly what the government will do.. just like in the US.. and just like in the US it won’t work here too, won’t stop them though..

    Stillgotshoeson
    March 31, 2010
    Reply
  34. Biker, without going back to it I hope that I phrased that as my speculation on that sector of Sydney demand because that it was.

    I have heard from several sources since with anecdotes that support exactly what you are saying. ie: upgraders from apartments and semis who sold to first home owners without having committed to a new mortgage in advance and then buying into houses in middle distance (or outer inner) areas. This is still speculative but at least not just from my own musing.

    The MEL inner city thing intrigues me. Unless the population growth is a very recent spurt the offical figures don’t support the demand side. I wonder of the student population is being captured properly in the figures. I know many Indian taxi drivers get their licence in ADL where it is cheap and then move to MEL or SYD.

    http://www.brisbanetimes.com.au/national/nsw-growth-overtakes-qld-abs-20100330-rb3u.html

    The national bank lending figures are fairly flat but with declines other than VIC and them being backward looking perhaps I am missing something or perhaps there is foreign direct investment in investment styled property stock but wouldn’t that show in higher rental supply around Port Melbourne etc. I had dinner last night in SYD with an exec WA expat living in an exec apartment in Port Melbourne for about 5-6 years and he couldn’t confirm the Chinese buying.

    Reply
  35. “wouldn’t that show in higher rental supply around Port Melbourne”

    The general consensus is.. and again no figures.. is that most of the foreign investment properties are not rentals, but accomodation for their children whilst they attend University. They feel capital gain over the period the children are at school….is a better proposition than them renting… in a growing market, will all go pear shaped in a correction.. A smaller portion again are “company” residential properties.. foreign business people reside in them whilst here working.

    Stillgotshoeson
    March 31, 2010
    Reply
  36. Realist: “What you are saying is we should keep immigration strong to support the health and retirement of people who have p##@ed up 40 years of exponential growth and created a system devoid of any real sustainability.”

    Nah, nothing like that… . I’m a realist. I’m saying you face another two decades of these same folk deciding who runs the country… . My generation had very large families… . ;)

    Biker Pete
    March 31, 2010
    Reply
  37. I agreed with your views on the Chinese situation, Ross.

    Interested in your comment: “I wonder if the student population is being captured properly in the figures.”

    I know that when foreign ownership was relaxed, the new policies had increased provision for foreign ownership, based on studies in Australia.
    I may be wrong, but I thought the ceiling was $500K. It may have been further relaxed since then, of course… .

    Biker Pete
    March 31, 2010
    Reply
  38. Shoes, I forgot to say that we walked from Docklands to Spencer Street on the weekend and we didn’t see any significant no. of Chinese students (not even on the free City bus from the markets down to Docklands that students often hitch a ride on) but perhaps they are all inside hitting the books!

    Reply
  39. Ross, What do you call a “significant number”?

    I live in a Melbourne CBD apartment, and when I walk the streets I see thousands of Chinese and Indians. In fact, after 6pm it is rare to see a European.

    Of course not all of these Chinese and Indians are necessarily students, but they do tend to congregate around the hairdressing and cookery schools, which suggests that a lot of them are.

    In any case, once they have paid their education industry bribe and received their residency visa, what makes you think that they will be happy to support old white people?

    Realist is right. The baby boomers only have themselves to blame for voting in governments that squandered their social security payments. Selling out their country and children’s birthright is not going to make them any more popular.

    When the immigration bubble bursts, it will cause much more damage than just a housing price collapse.

    Reply
  40. Greg: “When the immigration bubble bursts, it will cause much more damage than just a housing price collapse.”

    British Columbia (notably Vancouver and Victoria) took similar numbers of Chinese and Indian immigrants non-stop for over three decades. If you believe Sydney and Melbourne prices are high, take a long hard look at realty in BC cities. ;)

    Greg: “…what makes you think that they will be happy to support old white people?” _No-one_ will be _happy_ about it, Greg. This is not really a site for _happy_ folk, you know… . :)

    Biker Pete
    March 31, 2010
    Reply
  41. Greg, my anecdote is real and yet limited. I welcome others.

    In the earliest days of the student promotions I was involved with those marketing the institutions overseas. In those days the institutions and various coordinators kept an eye on each other and the quality on offer. That appears to have gone out the window later on (it would have been in the Howard years mind you).

    Info on no.s etc is here

    http://www.austrade.gov.au/Education/default.aspx

    VET (+35% growth on Labor’s recent watch) and ELICOS are the most abused as you say. Chinese make up 24% and India 19% of the 600K national total.

    According to Study Melbourne, “more than 100K” overseas students of the 600K study in Vic.

    But that figure isn’t really high enough to square with the different outcomes between cities that has the MEL market soaring while all the others went backwards and at a time when my visual of high rise has seen greater apartment growth around Melbourne city than around other CBD’s in these past 5 years. Gottliebsen today says MEL developers have been cut off by the banks for new projects but that doesn’t explain how we got what we got in MEL in the years to 2009.

    We also always need to question xenophobia like in 2001 when I got back from germany after being resented there for “stealing a german job” and then on a train immediately am confronted with a western suburbs kid wanting to bash a Korean for his unemployment problem.

    But …. one thing both sides of politics are doing is pushing immigration to make jobs. And one thing they are doing with melbourne is trying to replace a manufacturing economy with a service economy. And it works short term, but all you do is run up current account deficit and replaces good jobs with bad jobs in terms of future export or import replacement income.

    So I agree that it is stupid policy other than to have good fee paying students or higher learning fertilising students here and a small contained programme that supplies traditional hard working but struggling migrants that get a bonus of a formal education start with English skills.

    You don’t have to put a stop to immigration debacles and the debacle of dollar behind the political lobbies. Look at skilled immigration under Howard and how the jewish community used it as a device to increase their share exponentially, and there are many others.

    Everything else is traditional Australian liberal fascists putting growth and short term tax receipts onto the never never.

    Reply
  42. I would like to see Company Taxes and Payroll Taxes reduced for companies LOCATED in Australia.. I would also like to see income taxes reduced and the GST increased.. More money for “the people” to invest/save/spend as they see fit..
    Incentive for companies to a) stay or invest here with lower costs, more companies = more jobs = negative effect on tax receipts for lowering taxes in the first place
    GST is consumption based.. Hewson’s 15% on everything, and removal of a myriad of sales taxes etc was a far better system than the one we have.. The removal of the fuel excise would have been very good for those in the outer suburbs.. the cynic in me feels that oil companies would have crept the price up though…

    Stillgotshoeson
    March 31, 2010
    Reply
  43. Ross, each side of politics has its own reason for pushing excessive immigration rates despite long term and growing opposition from the majority of the population.

    The money-grubbing Liberals want to reduce the cost of labour to increase corporate profits for their business mates.

    The power-hungry ALP control freaks want to extend their branch stacking practices to the national level, so that they can get the votes needed to form government and boss everybody around.

    Immigration does not necessarily create jobs. It can create additional local demand, but it does not necessarily enable the means to support the additional demand.

    It’s obvious really, for everybody except the brain-dead, which includes most of our politicians. Otherwise, we could take a couple of hundred million of China’s excess population and cure unemployment forever.

    However, the existing large population base has hindered rather than helped the unemployment situation in China and India. The reality is that both countries’ economies have improved since they started taking actions to reduce their population levels.

    And the social problems associated with the excessive immigration policies are only just getting started here, compared to Europe and the US.

    Reply
  44. Great posts Realist

    Reply
  45. ….”and that’s what happens when the people forget that paper chits are there to represent real wealth, such as gold and silver, and allow their Governments to disolve the prudence that resulted from the last major disaster.”

    “What happens then mommy?”

    “well, dear child, the chits start multiplying at an incredible rate until suddenly, they’re not worth anything any more. But just before that happens, everyone thinks they’re stupendously wealthy and smart for having so many more chits compared to their parents! They go out and spend, drink and celebrate as though they have discovered the fountain of wealth. Everything starts becoming veeeeeery expensive. Almost everyone becomes drunk on all the free wealth! But it doesn’t last long and almost no one can see it ever coming to an end.”

    “I don’t like chits :(”

    “Tomorrow I’ll tell you a happy story about the leprechaun who laughed and laughed! Sweet dreams!”

    “Yay leprechauns! :))”

    Reply

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