Trader Vic Explains Hyperinflation

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Hmm. If everyone, including the RBA, is so sure that a hyperinflationary depression is not likely, then what is legendary trader Victor Sperandeo doing saying the exact opposite?

If you don’t have time to watch the four minute segment on CNBC, his point is simple: long-term structural deficits in the US make it nearly inevitable that bond investors will cease funding US deficits and yields will rise, forcing debt monetisation by the Fed.

Yes, yes, it seems like an extreme scenario. But if you haven’t noticed, we live in extreme times. Lindsay Lohan is in jail. The President of the United States goes on “The View” to conduct a national therapy session with the Estrogen Class. And much of the world remains hog-tied by unproductive zombie debt.

Incidentally, Sperandeo says the hyperinflationary depression “trade” is precious metals. We would sort of agree. But it’s not really a trade. Buying Pets.com in 1999 was a trade. Buying precious metals in 2010 is insurance against financial catastrophe. Either you take this stuff seriously or you don’t. The choice is yours. But there’s clearly a lot at stake over whether this “extreme” view is accurate or just, as some claim, hyperbolic.

Speaking of hyperbole, have we over-stated our case about government debt? No, says Nassim Taleb in a BusinessWeek interview on what makes the financial system so fragile:

The massive one is government deficits. As an analogy: You often have planes landing two hours late. In some cases, when you have volcanos, you can land two or three weeks late. How often have you landed two hours early? Never. It’s the same with deficits. The errors tend to go one way rather than the other. When I wrote The Black Swan, I realized there was a huge bias in the way people estimate deficits and make forecasts. Typically things costs more, which is chronic. Governments that try to shoot for a surplus hardly ever reach it.

The problem is getting runaway. It’s becoming a pure Ponzi scheme. It’s very nonlinear: You need more and more debt just to stay where you are. And what broke [convicted financier Bernard] Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers.

But wait, Australia doesn’t have this problem does it? A few readers wrote in and asked us to look at this column by Ross Gittins and re-evaluate our position on the severity of the debt problem in Australia. The argument is that if your household mortgage was just 6% of your income, you’d be quite happy with that ratio, so why the big worry when Australia’s public-debt-to-GDP ratio is just 6% of GDP?

Such a blasé attitude about debt is remarkable really, given a world that’s hobbled by reckless borrowing decisions taking by households, banks, and governments alike that leave such a massive economic hangover for years. But there are a couple of points to be made about the article. First, every single dollar spent by the government comes from your pocket or the pocket of a business. It’s money that necessarily reduces the money somebody could spend, save, or invest.

There is, of course, a philosophical issue too. If you choose to go into debt to buy a long-lived capital asset because you value the security of owning your own home, that’s your own financial choice. You live with it and whether you can pay the mortgage from your income – money you earn by your own labour. That’s a voluntary decision made by you and your household alone, which is appropriate, considering you and you alone are in the best position to not only determine what you can afford, but what you want.

The government is not a household. It does not have income. It has money which it has to take from someone in order to give to someone else, whom it deems more worthy. Whether or not you object to that arrangement (and obviously we do, since it’s theft), there is the added question of “more worthy” or whether the government is confiscating capital from the private sector and putting it some more productive use in the public sector.

You’d have to be living on the face of the sun to not realise how wasteful government spending has become. It certainly hasn’t been productive. But it must be paid back all the same. And the borrowing continues like a bad habit. Modern democracies do very poorly at limiting public spending. Imagine that, people voting themselves money that’s not theirs. It’s organised crime without the Tommy guns and wingtip shoes.

More topically, you have to ask yourself if turning a $20 billion surplus into a $40 billion deficit was an example of “worthy” spending that saved the economy from a recession by electrifying hundreds of houses, killing four installers, and building over-priced school buildings (what is so revolutionary about that anyway?). Mind you we don’t reckon the Liberal party would have behaved much differently. It’s already promising to extend government spending on paid parental leave in a transparent attempt to soften hard man Tony Abbott into a compassionate conservative.

But that’s exactly the point. Tolerating or endorsing government deficits and debt is akin to saying you believe that the government knows what to do with your money better than you do. That’s rubbish. It is in the nature of the Welfare state to consume an ever-growing share of private resources. It’s a virus and a plague and a monster and we should not endorse feeding it. Ever.

Besides which, the most serious debt problem in Australia is not yet the public debt. It’s private debt. By world standards, the Aussie household debt to income ratio is at the top of the charts. Specifically, the ratio of household debt to disposable income is 158%, according to this rather distressing article in Forbes.

What’s most distressing is the determined ignorance/indifference of most of the Australian media to take seriously all the evident signs that Australia has a debt-fuelled house price bubble. It’s not the first time we’ve seen it, although the level of condescension, arrogance, and vitriol directed at housing bears here is comparatively high. But then, the real estate industry probably throws a fair few advertising dollars the way of the newspaper industry these days and a lot of determined housing shills have a vested interest in talking up their own book.

But have we gone off the deep end ourselves and become too ideological? Too extreme? Too extremist?

To be fair, we’ve always admired the even-temperedness of most Australians. The country seems to take things in stride, never over-reacting or getting too fussed. But politically, or at least economically, this is probably a liability. Your good will is being exploited by the Keynesian dinosaurs clinging to their interest rates and orthodoxies from the past and prodding you accept creeping government debt and power in your private life. They are vermin and scum of the lowest order.

They would like you believe there is a sensible, socially conscious way in which government can improve your quality of life through a more just redistribution of the wealth generated by the private sector. But that is just a really well-tailored load of crap. It’s a ruse designed to keep you forking over money to people who keep wasting it on things they believe you should care about while putting up more speed cameras and taxing more and more goods and services to pay for their fat guaranteed public pensions.

That’s not to say there aren’t things you should care about. But we’ll leave those things up to you. It is, at least for a now, a relatively free country. It’s a common accusation that people who believe in the free market are not compassionate because they are against government welfare programs. More rubbish by the bullies in the moral police force. Pigs.

It’s easy to be compassionate with someone else’s money. That’s what we call the outsourcing of virtue to the State so you can watch the Masterchef finale guilt free. It’s much harder, for example to follow the Golden rule and do unto others as you’d have done unto you. Government debt is just a cheap way of trying to avoid the very real obligations we all have toward one another every day.

And with that, we’ll take back to our sick bed, which you may argue has affected our mind already. The doctor advises bed rest, lots of fluid, and less news consumption. We’ll take him up on all three, until Monday, where we promise to leave off chronicling the moral rot of the Welfare State and get back to how be financially free in an unfree world.

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. Deflation for the US, mild inflation for Australia.

    Thanks for the reference to Gittins’ view on Australia’s debt, Dan:

    http://www.brisbanetimes.com.au/opinion/politics/dont-take-the-bait-when-they-say-were-drowning-in-debt-20100727-10u6r.html?comments=183

    It’s a breath of fresh air in the Cave of the Bear Clan.. ;)

    Biker Pete
    July 30, 2010
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  2. I may be betraying my ignorance – I’m only a bush accountant.

    Why do they always measure public debt (being Govt debt I understand?) against GDP? That seems to me like measuring my debt against my neighborhoods income. After all the government doesn’t contribute to GDP.

    Public/govt debt should simply be measured against annual government tax receipts for a true measure that actually means anything.

    Or to measure any debt to GDP then ALL debt, private and Govt lumped together against GDP sounds like a sensible measure.

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  3. “That seems to me like measuring my debt against my neighborhoods income.” – The logic is that when your neighbour is your government, then your income is potentially your neighbour’s income perhaps?

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  4. “…measuring my debt against my _neighborhoods_ income…”

    Which US state has ‘bush’ accountants?!~

    More seriously, why should my private debt be measured against government tax receipts? It’s _my_ debt. If I blow a couple of mil taking property loans I can’t afford, I doubt the Australian government will bail me out!~

    Clearly Australian banks see private debt in property as low risk. :)

    Biker Pete
    July 30, 2010
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  5. Please please please don’t debate Gittins. We could not have endured his “blase” attitude and his “it will all be all right in the mornings” patterned repeating rhetoric for the decades he has snaked around.

    Gittins needs to have his grovelling SMH post Keating apology nailed to his head. Yes debt did matter – sorry he said and – then he can’t help himself and goes back to writing the same tripe he always wrote. Gittins will never view this country’s current account as any matter of consequence, he had enough trouble taking on board the unsustainability of Keating government debt. All that debt fueled services economy is where the heart of the nation lies he says. External accounts largely irrelevant – yo ho ho. Buy him a Santa suit.

    He’ll be with Stiglitz and Krugman pumping up the world’s reserve & private bank balance sheets with crap ad finitim and for the US being the market maker (buying their debt with the newest piece of paper out of their USD printing press) of the near zero cost global reserve currencies debt that radiates out into the rest of the world with cheap money ad finitim. All we need to do is keep all the deflationary or inflationary velocity up there in bogus balance sheets and have no-one make a call on the US and “it will be all right in the morning”.

    And if someone cries risk! Gittins will call them stupid and it will be all their fault Australia can’t get wholesale bank funding and is going down the toilet! He wouldn’t know a balance sheet if he tripped over it – but now I’ve got it – forget Santa – he’s more like a Dame Edna Everage version of an inner urban socialist dreamer sans lipstick.

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  6. HaHa… Always enjoy your stuff, Ross!~

    I _rarely_ agree with Gittins on anything, but he’s right in this instance.
    He’s not arguing the US is AOK in this piece, rather that Australia’s debt is _no big deal._

    Now we know that _both_ parties state they can get us out of debt in just three years. Both the Libs AND Labor have proclaimed we’ll be in surplus in just three (3) years!~ :) Rarely do opposing parties concur on any critical financial necessities. Both say it’s feasible. Clearly Gittins agrees with both parties.

    Now if Gittins stated that the US or Europe would be debtless-in-a-decade we’d all enjoy a good laugh. ;)

    Biker Pete
    July 30, 2010
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  7. “have no-one make a call on the US” – What are you expecting Ross? For the US to say that if you won’t lend us more then we will default?

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  8. There are some thoughts being bounced around that a GST/VAT could go a long way towards balancing the US books Biker. They are one of the few countries that haven’t actually played that card yet. And it’s a biggy. But immensely unpopular – And even more so in a country whose constitution was written by some Boston Tea Party participants I’d guess?

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  9. “…a GST/VAT could go a long way towards balancing the US books Biker…”

    Their state taxes are quite a mishmash, Ned. Not as much a confused debacle as Canadian GST/PST taxes, but then Canadians get _so much more_ bang-for-their-buck than Americans do… .

    I confess I actually saw Obama on ‘The View.’ Just flicked the TV on and was transfixed. I’d never seen those women actually shut-up-and-listen!! Usually four of them are talking over each other and a fifth is loudly attempting to interject!~ Dan had an excuse for watching it (he’s ill), but I doubt his condition was much improved by the time the credits rolled through… ;)

    Biker Pete
    July 30, 2010
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  10. I love this comment below Gittin’s usual tripe:

    “I heard that in Economics examinations at Uni, they use the same questions each year, but just change the answers!”

    :)

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  11. Top marks for that one, Don!~

    Looking at Karratha at the moment. You’d have to be confident in China’s expansion to jump into rentals there, but one of our tenants scores $200K+ pa on just two rentals there, so I’m just a little green with envy?!*

    Anyone know anything about Gladstone? A developer just contacted us for a looksee. Might have to fly back to QLD for another look… .

    * Having just laffed at the idea of anyone paying $57K rent pa in Sydney! :)

    Biker Pete
    July 30, 2010
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  12. You’re a good man Don!

    I know I’m not the sharpest tool in the shop. So when it comes right down to it I still tend to revert to the 4 questions ‘wise ole mamma’ asked me when I wanted to whisk her little girl away:

    * Do you have a job!
    * Do you own a house!
    * Do you have some money in the bank!
    * Do you own a car!

    Not sure what the fascination with automobiles was? – A cultural thing maybe??? :)

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  13. Maybe I misunderstood and she said ‘cow’? :) :) :)

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  14. Youngest (25) doesn’t drive. Haven’t quite sorted his excuse:
    “Why drive, when you can call a limo?!~”

    Think I’ll start spending the kid’s* inheritance… . :)

    * Note position of the apostrophe, carefully… ;)

    Biker Pete
    July 30, 2010
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  15. Lets have another ‘decade-of-the-wild-party’. We could ramp up public debt north of 400% of GDP. The economy would ‘hit the wall’ just as the boomers park their motorbikes for the last time and move into medical and aged care facilities. The rest of us can then quietly move to New Zealand….Sounds like a plan ;-)

    Reply
  16. “Sounds like a plan” – Well Plan A anyway. ‘Course as a boomer my vote for Plan B would be to up immigration of cute little 20 yo Asian aged care assistents to 2M pa??? ;)

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  17. “motorbikes”?

    Gawd, yer old mate is back, Ned!~ ;)

    “…up immigration of cute little 20 yo Asian aged care assistants to 2M pa”

    I second The Plan. ROFLMAO, legs-kickin’, etc… you know the scenario… :)

    Biker Pete
    July 30, 2010
    Reply
  18. Ned, I wouldn’t punt on what will happen. If anything shifts in any major way it is going to be ugly. But they don’t have to worry as much about bond vigilantes if they all have skin in the game and the alternative is default and who would take on the UST? Many sabres rattling around China, they have no offensive game, passive aggressive is their best option. US pulling out of Yellow Sea war games is good for stability. I saw a aplausible report that pointed toward the fact that Cheonan might have been an accident and bad seamanship combined. The torpedo was still a crock with the Russians saying it had been in the water for years. That still means our RAN guys and our executive are up to their necks in it. Anyway I hope it was an accident (the report I read disappeared from the net so that is a good sign), and that would be just Emmanuel taking his “every opportunity provided by a bad situation” again. Far better than China and Russia knowing that the US or a proxy sank the corvette. The South China Sea and Hillary stirring the pot this week with ASEAN is the latest worry. The US needs proxies and they are hoping for Vietnam to join the Phillipines client state (I should read more on young Arroyo). If the US takes station there something bad will happen. Vietnam can’t be that stupid … we hope. Pig headed China needs to budge too but not on the end of US diplomacy. Funny thing that QANTAS subsidiary situation ….

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  19. “who would take on the UST” – I’d actually love to know Ross? Because someone certainly seemed to give them a hell of a bad shakeup back in September 2008 :

    http://seekingalpha.com/article/119619-how-the-world-almost-came-to-an-end-on-september-18-2008

    “wouldn’t punt on what will happen” – Unfortunately I agree that it isn’t especially wise to be making a committed call on anything much re the global economy just yet.

    Geomilitary stuff – Damn silly for us to be aligned for mine. China is happy to buy our minerals. And couldn’t possibly see advantage in those minerals ending up in the hands of any nearer neighbour that just could figure they need them more than China – Are my ignorant thoughts anyway.

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  20. Hmmm … And you imply I author disturbing mental imagery Biker? I’ve got this mental pic of Tamara turning up to take your Shiraz glass away and slap you down sometime real soon me ole mate? :) :) :)

    The List – Very gratefully received when it comes my way – Ta. Let me know if there are any issues that remain in doubt. I’ll run them by my fav’ bean counter and scum sucking bottom dweller for second opinions. (I have a low opinion of FAs so shan’t be asking ANY of them! … :) )

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  21. “I’ve got this mental pic of Tamara turning up to take your Shiraz glass away and slap you down sometime real soon…”

    As I’ve often hummed (mainly in my sleep)… “let’s forget about Tamara…”

    With you on FAs. They’re well-acronymed!~

    Biker Pete
    July 31, 2010
    Reply
  22. ;) :)

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  23. “First, every single dollar spent by the government comes from your pocket or the pocket of a business.”
    Not in Australia, it doesn’t. Australia is sovereign in it’s own currency, so taxes don’t ‘fund’ any government spending. It would be true under the gold standard, and in the Eurozone, but not in Aus, UK, US etc.

    “Besides which, the most serious debt problem in Australia is not yet the public debt. It’s private debt… the ratio of household debt to disposable income is 158%…”
    And this is because Howard and Costello ran budget surpluses, reducing the private sector’s ability to save, thereby forcing the private sector to go into debt in order for the economy to expand (helped along by loose lending standards).

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  24. Ned, my reading of the deleveraging event was that it only got headed off by the liquidity injection and the seminal moment was the roll out of the sovereign swaps. If you sell USD assets trumped as collateral, however bad a haircut you take, you have to pay down the loan and unwind the derivatives (or get liquidated and the bank does it for you). To pay down the loan you need to buy USD and it gets short squeezed. Put a whole lot of USD’s into the system, provide them for free, and they have to do something with them. Besides another great lick of hidden debt on the US sovereign acount it worked fine when everyone was reminded that they either went along with it and stopped flogging assets, especially the b/s ones that only get exposed on liquidation, or they would all likely go to the gallows.

    That latter is what is keeping it from imploding in my book, the alternative is so grim. If they can keep the sovereign side looking serviceable they might think they have a chance of making extend and pretend a feature of world economics until 2050. Maybe they will all get religion and greed will be agreed as dead between now and then? Organised jewry is hoping so anyway because only Yahweh would know what is in store for them if it explodes.

    There wouldn’t be many moralists that would want to look themselves in the mirror and be responsible for likely next step scenarios. The trouble is that the field is way open for a Hitler and scapegoating or more likely another US revolution taking on more the style set by the French.

    My big worry is the black cloud over “discretionary” consumption and the taxes that were generated from it and capital gains. I really don’t think economists have any idea how big they built this discretionary services economy that can be switched off like a light switch whenever a household needs to. It is massive. Latte’s to fitness trainers to corporate training to dining out. It is a long long way back to a food & clothing & non asset inflated shelter economy. If we go there the lack of tax receipts could finally take down the pantomine. Start winding down the humungous nanny state and the downward spiral picks up even more steam.

    So let’s hope the idiots that got us into this stick to the ridge path and only meet their reckoning when they meet their maker.

    NV, you may be off with the pixies but you have two things right. Howard and Costello were lazy reckless sods, not quite in Keating’s league, but close enough. The only decent comment keating has made is that Howard dropped the productivity ball. The rest of us say he expanded the nanny state he promised to shrink and made a cozy cuddle with the Keating era acolytes in Treasury / RBA / and all those that swam around Labor that had migrated into becoming the feetaking gadflies like Garnault and Eddington et al.

    Where you come closest to truth is on private debt. Private debt is an off balance sheet liability for the RBA. Bank wholesale funding can no longer be trumped up under the title “implied guarantee”, it is as it always has been a “real guarantee”. Look what happened when even the subsidiary of a state owned enterprise tried to renege on debt in Dubai. Look what the nasties are doing to Iceland today with their Moodys downgrades and the IMF loan denials.

    So all this private debt you are talking about hangs on what? A “risk rating” or “risk adjusted pricing”. And what is the major determinate of that risk for a sovereign investor? Yep the “guarantee” and the state credit rating. And what is the state credit rating based upon? Yep, the surplus/deficit.

    So what is our foreign private debt? It is a Reserve Banker cooked up overleveraged liar loan. Keating acolytes got all excited when they saw the possibilities after deregulating the banks. So despite stuffing it up the first time around in the 80’s they set out on round two (this time though aided by Clinton’s Rubin and Summers and the Greenspan put team). The trick is you put in $1 of surplus and you turn it into $1000 of private current account deficit to run the mother of all asset price inflation in property. And you smile like the righteous nun who tenders the naughty animals in her spare time.

    Now before we string this all together, and unlike dopey Gittins, we might have regard for Australia’s past crises. 1840, 1890, 1930’s, 1960, 1974-8, 1981. The common factor – a crisis on the current account, and an ability to access offshore funding. Remember Rex Connor and the Khemlani loan affair? That’s how desperate we get in a credit squeeze. And who holds all the household private balance sheet debt? The 4 pillar banks offshore raised wholesale funds. And how safe are they? Well the the average bond term prior the crisis used to be +7 years. Now? Less than 3 years. Crisis survivability in a second bounce GFC? Way less than half. And remember we had a government surplus going into GFC 1 and Basel II capital laws and lack of raw leverage limits were yet to be derided in terms of real risk to capital.

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  25. Comment by Ross on 31 July 2010:

    Ned, my reading of the deleveraging event was that it only got headed off by the liquidity injection and the seminal moment was the roll out of the sovereign swaps.

    Why in the deflation/inflation debate I think it may still be possible to have a bout of inflation before the deflationary effects kick in.. all this liquidity needs a home.. both will occur.. the highs and lows are unknown the timing is unknown the order sits on a tightrope.

    Stillgotshoeson
    July 31, 2010
    Reply
  26. Ross Gittins missed the point about a Nations Debt vs GDP.

    It doesn’t matter if Australia has less debt than most.

    The point is: any unneccessary government debt puts an unneccessary drag on economic growth – because the interest paid on it’s debt is ‘dead money’.

    This could instead be spent on government services, or taxes could be lowered – benefiting the people of the nation.

    Ideally, a federal government needs very little debt at all.

    The only debt it needs are the bonds used in ‘open market operations’ – less than 1% of GDP.

    Otherwise, it seems the governments of the world have forgotten a natural economic law: ‘only spend what you have earned’

    IMHO, the only long term sustainable path is a balanced budget.

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  27. “It doesn’t matter if Australia has less debt than most.”

    Or less unemployment… or can balance the budget within three years… .

    These facts are trivial. The whole northern hemisphere is better off. Asian countries are all better off. We are d-o-o-m-e-d. ;)

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  28. I share the sentiments of your argument Dan but I think the Australian psyche is somewhat simplistic when it comes to how we ended up floating gently through the beginning of this crisis. The governments ability to roll out that money, reserves and the borrowed funds, meant that life as we know it stayed the same and lets face t for a large part of our workforce things have even got better.

    This is not to say that the gorging on debt and fast flowing money is defendable but I think t is genuinely lost on most people that this money and the associated “good times” was and is short lived. The national has turned into a bunch of selfish little brats, “I don’t want government debt, the national needs to save more” is the cry and in the same breathe “but the country needs to remain strong and we must grow”. Delusional at best, the country will only keep growing if we keep swallowing mountains of debt, and then the word “growth” becomes contradictory, you can’t grow from what is essentially killing you.

    My observations are simple but break down like this:

    The start

    1. We were at the point of tipping over but the reserve funds of the Howard government allowed us to spend and borrow big.

    2. Interest rates dropped faster than anyone could have ever imagined and stayed low for far to long, money was cheap and for a national that has short memories it was like open up the gates to the ‘wanna be” investors candy store.

    2. China began spending its way out of (or into) trouble and with it came the large scale and immediate need for our resources.

    3. The country looked very healthy from the outside so all those very wealthy international investors felt compelled to park their money here in property. This again gave the illusion that this national had not only missed the GFC we were growing stronger from it (absolutely moronic when you view it in simple context)

    4. A conflicted media who thrive on property advertisement’s, in fact some survive on it, not reporting anything other than positive sensationalized news to keep a severely overheated market bubbling away.

    5. The reckless spending that comes from such seeming normal but by in large unexplainable wealth and growth. It hasn’t been just houses, cars, white goods, electrical and clothing have all gone above and beyond expectations as far as growth and earnings are concerned. Don’t forget that the 5 years leading up to the GFC were some of the most prosperous this national had ever seen and most retailers were exceedng them in volume and profit in the midst of the GFC???

    The End

    1. China’s demand for a resources will drop off dramatically in the next 3-6 months. This is due to 2 things, one their economy is cooling and quite rapidly, and two they already have a well documented oversupply of our raw materials.

    2. Housing has started to drop off, clearance rates suggest there are no supply issues and rental properties are starting to appear more readily available and in numbers.

    3. Interest rates will go up, there is a massive campaign from all banks in OZ to get term deposits this is a sign that international money is starting to become expensive. With a private debt ratio of 158% there is no money to give them whether their interest rates were 3% or 17%. They will keep borrowing overseas and money will become more expensive to borrow and maintain e.g. variable mortgages.

    4. Governments stop borrowing and draw a line in the sand to which they say to the public the good times are over “time to save”.

    5. Somewhere in the midst of al this is the nations collective consciousness to the looming decline, there is always a turning point, but like the boom it’s hard to see coming. All we know is that feeling of gravity taking over as you start to fall to the ground, like inertia it is not something we can dictate or vary once in motion.

    I know harder times are coming and that they will arrive with little or no warning but i think it is naive to say that government spending has been reckless and wasteful without acknowledging the very fact the national would be on life support without it. I say this however knowing that the excess of debt will make the inevitable far worse than it would have been but i think anyone with an open mind can see that this nation is incapable of accepting a life without perpetual growth. The general consensus is that life in OZ will just keep getting better and better and better, no one I have spoken to can even conceive that this time next year we will be anything more than richer.

    I like to use a food analogy with money and that is, the government is dealing with spoilt obese children, they have been given so much and lived such abundant lives but ask them to share or reduce their gluttony and they begin to hate and resent you. You keep spending more than you have to maintain their ever growing hunger until they are so over weight they develop type 2 diabetes.

    By this time they will be forced to dramatically change their diet and live style just to remain alive, the end result is a struggle to survive. I think this nation is blinded by its greed for “perceived wealth’ that it is heading straight for the insulin needle with one hand and stuffing the cream filled cake in their mouths with the other.

    Something will give, its just a matter of what first and when.

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  29. Thanks, Ned. A very timely and appropriate link! :)

    “…a one-year term deposit or 7.05 per cent on a five-year account for deposits ranging from $5000 to $5 million.”

    I guess that answers the question re my son’s situation, with his 6.8% one- year term deposit ending soon.

    The record level of Australian savings makes much of the previous blog to yours seem just a little silly… . The ‘national’ clearly isn’t in as much excretional as he might hope!~ ;)

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  30. Hey did anyone else see that top secret military report on Wikileaks where when GWB was told that ‘Iraq has no WMD’ should have read ‘Iran has no WMD’, he replied ‘Well, whatever the name of the place is, the fact remains, that Texas is running low on oil.” :)

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  31. Thought ‘Green Zone’ told the story relatively well, Ned. Wouldn’t normally have hired the DVD, but I won six months’ free DVDs through QuickFlix. :)

    (Wonder how long Bolivia’s government will last, with well over a trillion bucks worth of lithium sitting idle there? Apparently they’ve harvested a mere 16kgs of it, enough to power a single EV… .)

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  32. For leveraged property investors here is a look at some of the competition.

    http://noir.bloomberg.com/apps/news?pid=20601087&sid=abJeYL4Mt3eQ&pos=4

    Your bank hasn’t got the readies to finance the loans they made to you years ago, and the wholesale funding bonds that support the loan they made you is getting rolled over faster and faster.

    Beyond the collapse of the de-risked securitisation funding creationism, banks everywhere increasingly need to pull their funds from the same global capital/savings pools. It is not a matter of access to the funding pool but bidding for it while competing on a risk vs price basis.

    Perversely now the funding reality is that the very best mortgages go into the securitisation market, the next get lined up against the foreign wholesale bonds, and the worst live on the either the RBA’s balance sheet or the banks own tick.

    The “investors” are dominated by those themselves leveraged, live on the ZIRP, and hang out in the securitisation market. But the representatives of the savers in the EU and Japan can demand an Aussie deal at Libor +4% in order to pass over a Hungarian deal at +8% after a deeper look into the quality of the banks book and political risk than a ratings agency or a BIS.

    Reply
  33. “…after a deeper look into the quality of the banks book and political risk…”

    I’d guess lenders might be looking at the likelihood that a government might step in and guarantee the banks, in assessing risk, Ross(?)

    Rising rates are a reality. Most old players like us factored in 9.45%+.
    We were pleasantly surprised when rates fell by over 35%. :)

    Frankly, with taxation supports very likely to remain regardless of which L party wins, it’s not investors who should worry. It’s any FHBs who decided the new furniture, new car, and new widescreen should follow the new house… . ;)

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  34. Cheonan report with pretty much what I was hearing earlier. Not much speculating on what occured. Follows the Russian report mainly.

    http://www.globalresearch.ca/index.php?context=va&aid=20408

    US Sea Of Japan manouvres had Russian flagship in SOJ and the tit for tat escalation had Canadians having to intercept Russian strategic bombers in their Arctic territory 2 days ago.

    Spend it before it financially and physically erodes because we will never afford building replacements again … is the big danger with the US military.

    Reply
  35. Speaking of hyperbole!

    And how is that pronounced.

    Is it like they say in America (HI PUR BOLLY) or as they say in the UK (HI PUR BOWL).

    Had an argument(well you know one of those married discussions) with the missus about this about a year ago.
    She claims she won because she found some U.S web-site that had an audio or video clip confirming the U.S pronounciation, but I reckoned the debate was still open (more to the point I hadn’t conceeded defeat).

    Anyone care to help settle it?

    Reply
  36. I thought the hyper bowl was some place Yanks played football? ;)

    Reply

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