The debt binge of the past 30 years certainly expanded the waistlines of the banks. The banks grew fatter each year as consumers and corporates gorged on debt.
But will the future be the same as the past? Probably not, according to a major study by the Australian Centre for Financial Studies titled Funding Australia's Future.
Cash is oxygen to banks. Without it they cannot function. The study highlighted two potential choke points for banks:
1) Restrictions on the ability to source funds from overseas and
2) The increase in compulsory superannuation contributions from 9 to 12 percent.
Starved of oxygen, the banks may not be able to fill the traditional lending role in society.
Follow the money trail and superannuation is the new cash cow.
With all this money flowing into superannuation, is there a danger of government 'sequestering' some of the funds to 'nation building' projects i.e. infrastructure spending and financing government debt?
Cash strapped governments in South and Central America have past form on seizing control of their citizens savings, but surely Australia is more democratic than that? This is true. But there is more than one way to skin the cat.
30/20 is not a new form of cricket. It was a rule that was in force in Australia from 1961 to 1984. To quote from www.cmac.gov.au
'Under the 30/20 rule life insurance companies and superannuation schemes received tax concessions if they held at least 30% of their assets in public securities with at least 20% of their total assets in securities issued by the Commonwealth.'
With a widening gap between tax revenues and escalating expenditure (welfare and health entitlements), government debt levels are destined to climb. Could we see the re-introduction of a 30/20 type rule i.e. tax incentives for funds to underwrite government debt at lower than market rates and/or 'nation building' projects?
Remember, the most dangerous place to stand is between a politician and a pile of money - mining tax, carbon tax, tobacco tax (need I go on?). Do not discount the possibility of future governments becoming creative in what they want to do with your retirement capital.
The prospect of institutions and governments using super money as their plaything is certain to drive more people to establish self managed super funds. The trap here is the perception of personal control due to the title 'self managed'.
The reality is the government, via legislation and the ATO, actually controls what you can do with your 'self managed' fund. A self-managed fund will not necessarily afford you protection from any cash grab by Canberra.
No need to be concerned at this stage. Just be aware the 'authorities' are looking where the future pockets of oxygen are going to be and how they can access them.
Editor, Gowdie Family Wealth
From the Archives...
Richard Fisher's 'Super Easy' Fed
23-08-2013 - Nick Hubble
US Stocks and the Timeless Wisdom of Izzy Stone
22-08-2013 - Chris Mayer
Bankers Profit at the Expense of the Broader Community
21-08-2013 - Vern Gowdie
A Bond Market Tantrum
20-08-2013 - Nick Hubble
Australia's Economy: Complex, Fragile or Centralised?
19-08-2013 - Nick Hubble
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About the Author
Vern is a contributing editor for The Daily Reckoning. (To have The Daily Reckoning delivered straight to your inbox you can subscribe for free here.) Vern has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia's Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top 5 financial planning firms in Australia. Vern has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. In his leisure time Vern remains active with triathlons and pilates. If you want to follow Vern's financial world view more closely, then we recommend you join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Daily Reckoning essays.