That cracking sound is the politico-housing complex breaking

For seven years now we at MB have darkly observed that the Australian economy is caught in a growth straight jacket. It is as obvious to us as it is hidden from everyone else. The constraint is very straight forward:

  • Australia earns income by selling dirt to the world;
  • it makes itself rich by leveraging that income in global markets, via major bank borrowings, and tipping that debt into a housing bubble that supports consumption;
  • when any kind of turmoil threatens what is a gigantic national act of maturity transformation (borrowing short and lending long) the Federal government steps in with guarantees to prevent external interest rates from bankrupting the banks.

The system has worked marvelously for nearly twenty years but it has two fatal flaws:

  • first, if the dirt income dries up then the leveraging process gets more and more stretched such as household debt today;
  • second, it only works so long as the public guarantees are worth something and that means public surpluses come Hell or high water.

As dirt income diminishes, at a certain point it becomes a growth zero sum game to keep the system running because the efforts needed to keep the public guarantees in place undermine the very private economy that they underwrite. For just how long do you think that the government can plunder households with higher taxes to guarantee their huge leverage?

At some point household cash flow is so stretched that balance sheets must contract.

We have watched as this system has convulsed through the business cycle, forever lying to everyone within it to keep the confidence together that it still works. It has refused to bring banks to heel. It has accumulated debt both public and private to keep running. It has tortured successive treasurers who couldn’t understand why the drive for surplus was not rewarded with a new flourishing of private borrowing that could deliver their growth forecasts. It has already seen bank downgrades and sovereign downgrades are coming. It has gone a long way towards destroying any recognisably functional political economy as public and private merge into a singular perma-crisis aimed squarely at keeping the bubble inflated.

We call it the politico-housing complex and that cracking sound that you can hear is it breaking:

  • the dirt income needed to keep the system from tipping into over-leverage is drying up. As iron ore and coking coal hit new lows through H2 this year it’ll get worse and worse;
  • nine consecutive Budgets have lied about the path to surplus to sustain the guarantees. This Budget is so desperate, it has tried to hoodwink with “good debt” and was forced to raid the banking honeypot, triggering a war between politico-housing complex co-conspirators, the banks and government. The Budget is such a gigantic fiction that the forthcoming revenue misses will be big enough to strip the sovereign rating;
  • in turn, that will raise funding costs for the banks and the broader private leveraging. These costs are already rising internally as the powers that be try to cover their butts as the credit bubble becomes obvious to all.

It will still probably take a global shock to  strip away the lies that are gluing the creaking edifice together but that’s coming before long. When it does we’re going to find that:

  • fiscal policy is spent;
  • monetary policy is spent;
  • immigration policy is spent.

And house prices will be falling with nobody and nothing to stop it.

The time to act is now. Get your money out of Australia. We can help you do that with the launch of the MB Fund next month (with 70% international stocks).

Register your interest today (if you have not already):

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. CatfishwolfMEMBER

    I am curious why you say fiscal policy is spent when they haven’t even tried to properly capitalise on infrastructure spending at historically low interest rates.
    Are you able to do a post with your public and private debt projections? I know private is screwed. How fast is public going to the shitter?

    • It seems to be relatively OK for now even though it’s clear that S&P is going to strip the rating soon given the outlook will blow through its 30% to GDP ceiling. The risk is that there is a tipping point somewhere during a global shock when that trajectory becomes unacceptable to global markets and interest rates start rising at precisely the wrong moment. Where it is who can say but, in the end, you kind of answer your own question. If private debt is too high and must retrench then public debt will go up VERY fast when it does and that tipping point present itself much sooner than anyone thinks.

      • You ignore the positives in this article.

        The main one is that the worse the future seems to look to the rich Chinese, the more desperate the Chinese are to get an Australian asset – normally a house. This will keep the boom going for a while longer.

      • Valeri. Agree there seems to be an element of desperation among Chinese as they pay 25% above asking prices in Sydney and Melbourne.
        I am heartened to see that they exhibit the emotional desperation, and I look forward to seeing in in spades when the market is correcting.
        The Chinese are really gamblers at heart (generalisation) and Australian property are merely chips on the table.

      • SoMPLSBoyMEMBER

        @tonydd
        China’s aspiration are both geo-economic and geo-political/strategic as they seek to mould the world in their image. Best to pay attention to the ‘One Belt One Road (OBOR) as enormous funding is being applied in this initiative.

        “OBOR is President Xi’s most ambitious foreign and economic policy initiative. Much of the recent discussion has concerned the geopolitical aspects of the initiative. There is little doubt that the overarching objective of the initiative is helping China to achieve geopolitical goals by economically binding China’s neighbouring countries more closely to Beijing.”

        Currently, those with borders are the focus but others already like Africa and NZ have signed MOU’s. Although Australia has not (yet) signed a MOU, we have a significant ‘understanding’ already as they are our largest trade pal.
        https://www.lowyinstitute.org/publications/understanding-belt-and-road-initiative

        In ‘their’ image. Sigh. Dots connect.

      • Jumping jack flash

        There’s no way the Chinese are stupid.
        Surely they know that the more money they pump into the market, the higher the prices go and the better their “investment return”?

        Anyone think we’re being played like a 2nd hand fiddle?

        Incidentally this is the same rationale used by the banks to pump as much debt as possible into the housing market. It distorts the market, and makes the risk look awesome because the measure they use to determine performance is usually loan to value.
        As debt goes in, value goes up, and simultaneously, new debt capacity materialises, and existing risk falls. Its self-sustaining and self-reinforcing.

      • Yes, I was also curious about the immigration policy being spent. If anything, we would increase immigration, and with the world population increasing, there’s no shortage of willing immigrants. Not that I want a bigger population, mind you, but it is the policy of the three major parties.

        “And house prices will be falling with nobody and nothing to stop it.” There again, the perfect reason to turn the immigration tap onto full.

      • @md,

        Part of it is that if there really is a crash, with 30% of Australians having been born overseas, hence having a natural ‘Plan B’, the outflow will be rising too quickly for politicians to keep up with increases to the inflow. And at double digit unemployment it’d be a very courageous politician who failed to decrease, let alone attempted to increase, immigration settings.

    • Catfishwolf
      In addition to HnH’s reasoning you’d be borrowing all your funds from offshore. Now this holds whether you borrow in A$ or some foreign currency. Unless the infrastructure produces very direct benefits in the external account you are going to run into a point where you have to repay teh debt and you don’t have the money Even, at that stage, you simply print A$ you crash your currency so the future still has to pay full cost and then some!!!
      NB This is NOT accomplished by building rail bridges or roafds in Sydney and melbourne!!!!

      • I think you miss the point Flawse,
        Foreign buyers are not paying premium prices for our undifferentiated assets (generic farms, factories, electricity generators) however they are paying a price premium for our highly differentiated assets (North shore, Eastern Suburbs Sydney RE and monopoly assets like Electricity distribution/ toll roads etc).
        If we want to continue selling these premium assets for a premium than we must continue to invest in these assets. This makes investing in roads or rail outside of the Sydney/Melb basins is a pointless undertaking, a little like investing in Aussie Tertiary Educations that do not produce globally differentiated/valued skills it’s a pointless bit of fun for us but can never deliver returns
        At one stage I ran a company that was in terminal decline they had a very old product that still sold in reasonable volume and at a good price but EVERY other product that they’d developed actually sold at a loss.
        The best short term solution was to shut down the loss making sectors and milk the main business for all it was worth, of course we didn’t do this instead we ramped up the volumes of our loss making enterprises and borrowed heavily to support our increased market share (in loss making undertakings). From my perspective this is exactly what Australia is doing today.

      • Smart

        Actually you have missed my point. You are making a micro point. Mine is a macro point about how the system works on a macro scale. I’d ask you to follow that line in arguing this stuff. Meanwhile…. WE HAVE sold assets – very productive assets – over six decades. We are still selling them on a massive scale. The North Shore is not a productive asset – an asset we can sell as you opine – bit not productive. What happens in that case is that it takes the possibility of purchasing that asset out of the means of resident Australians. It is another effect of running a CAD – the population finally can’t afford to live in their own country – except as rental peons.
        Again my answer was specifically aimed at what was said about borrowing while interest rates are cheap. It’s just not a tenable argument

  2. Garth Turner of Canada’s Greater Fool blog describes how bubbles pop …

    Garth Turners Greater Fool Blog … ‘MAYDAY ?’
    … h/t PH …

    http://www.greaterfool.ca/2017/05/01/mayday-2/

    Over six thousand people decided to sell their GTA properties in the last seven days. Of those 6,050 new listings roughly 1,500 were condos, which might suggest a whole mess of locals have decided to cash in their detached lottery ticket before this gig is up.

    No wonder. The angst and heebeejeebees this pathetic blog has been wallowing in for the last few weeks has finally made into what’s left of the MSM. Like this story in today’s Toronto Star:

    It is like a tap has been switched off. That’s how realtor Louise Sabino describes the housing market in the wake of the Liberal government’s provincial plan aimed at cooling Toronto’s scorching property prices.

    “I think it’s shocking that it did make the impact so fast,” the Royal LePage Signature Realty agent said.

    That’s the funny thing about bubbles. Everybody’s horny to get their hands on rising assets – until they’re not. It always happens fast, whatever the asset and no matter the trigger. Greed is a powerful emotion, but it wilts before the dominance of fear. If enough people fear houses will stop rising (prices don’t even need to decline), they’ll cease making the Herculean sacrifice required to buy one. And down she goes. … read more via hyperlink above …

    About Garth Turner … Greater Fool Blog

    http://www.greaterfool.ca/about-garth-turner/

    Google News Search ‘Home Capital Canada’

    https://www.google.co.nz/?gws_rd=ssl#q=home+capital+canada&tbm=nws&spf=731

  3. ErmingtonPlumbingMEMBER

    Its not just Pauline Hanson, calling for a Real Estate busting, bubble popping, reduction in immigration.
    That paragon of Identity Politics and Political Correctness, the ABC, has aired a well researched story questioning our high intake, on their program, “The Money” last night,…I had to check the radio, to be sure that I was still on the ABC!,…on the drive home.

    Maybe a bust is just around the corner.

    “So in budget week we ask as series of questions. How big should our population be? Is there a goldilocks number? How much infrastructure do we need? Where will all these people go? And how will they affect Australian society?

    The economics of immigration and more on The Money.”

    http://www.abc.net.au/radionational/programs/themoney/economics-of-immigration/8514550

    • mild colonial

      Incredible. Fran and everyone else skated over all their opportunities this week.

      • HadronCollision

        HAHHH Kuddles Kelly the Koala, actually journalising?

        She could have got stuck into Narev this morning when he binarised (word of the day) the decision on whether to punish shareholders or customers for the bank levy. Ummmm, it could be a mix of either, why does it have to be an either or proposition.

        She routinely lets them off this stuff, same for journos. Obenfuhrer Cormann this morning was bloviating about something or other this morning and she let him off something so obvious I almost drove into a causeway in frustration

    • desmodromicMEMBER

      At least the debate seems to broadening and a few new voices heard. The discussion on infrastructure is becoming more nuanced with the argument that infrastructure spending is ‘recurrent’ expenditure if it is only just keeping up with population growth. That is, it only becomes productive investment if it improves the lives and productivity of the existing population. George Megalogenis remains a migration booster arguing that we are prosperous when immigration is high, late 1800s and post WWII, and the period of the ‘White Australia Policy’ wasted decades. Could he be confusing cause and effect? Like now, the late 1800s had high rates of immigration, an economy based on one or two commodities, large disparities between rich and poor, investment in unproductive housing, and finally a housing collapse. More people won’t fix that problem.

      • Even StevenMEMBER

        This part +many

        “The discussion on infrastructure is becoming more nuanced with the argument that infrastructure spending is ‘recurrent’ expenditure if it is only just keeping up with population growth. That is, it only becomes productive investment if it improves the lives and productivity of the existing population.”

      • Tassie TomMEMBER

        The mid 1800s had an economy based on 1 or 2 commodities, the late 1880s (with the exception of WA and Broken Hill) had an economy based on debt and debt alone.

    • The Patrician

      Megalogenis can not conceive how a country with a stable population can be vibrant, sustainable and productive

      • St JacquesMEMBER

        When tiny, classical Athens, population around 500 000 led a coalition of other even smaller Greek city states invented Western civilization, and then, as an encore, defeated the mighty armies of the vast and wealthy Persian Empire, tell him the truth – he has turned his back on the astonishing history of his own ancestors. It is Quality, not Quantity, that counts in the long run.

      • Thought the same thing Gav. You’ve just outed him! Anyone know if Megalogenis is a tight arse?

    • I heard this on the way to work this morning. It’s interesting that even pro immigration advocates can see there is a growing problem in Melbourne and Sydney.. But yes, good program.

      • The Patrician

        “…even pro immigration advocates can see there is a growing problem..”
        Megalogenis is part of the problem

      • ErmingtonPlumbingMEMBER

        Yes Rob,
        I liked the part where they debunked the whole ageing populations, need for higher immigration, that bit was articulated particularly well, I thought, as was the section discussing, diminishing returns on infrastructure spending with increased population growth.
        The comparison to Japan with the oldest population in the world was interesting.

        The ageing population argument is the main reason, I find on Main Street, to people’s acquiescing to a yearly intake that is clearly too high and affecting people’s standard of living. Debunk that argument, and a lot of people who don’t care one way or the other, all of a sudden become advocates of a much reduced yearly intake.

        A rational and non racist position on a lower rate of population growth.

      • The Patrician

        The fact that Megalogenis continues to peddle the discredited “immigration is needed to combat aging population” lie, is ample evidence to prove his lack of bona fides

      • “I liked the part where they debunked the whole ageing populations, need for higher immigration, that bit was articulated particularly well, I thought”

        Yes, they had a couple of really good speakers on half way through. Whether you agree with them or not, we need to hear from these people. We need to have a balanced debate. I’m not opposed to immigration, my partner came from the UK on a 457 visa, but the immigration rate needs to be sustainable and not undermine our standard of living.

      • Not worth jack without action. The media is there to be as inane as possible. To soak up the minds of the reasonably intelligent people that care and neutralise any effect they might have. It’s just a soapie for smarter people.

      • ErmingtonPlumbingMEMBER

        Your defeatist attitude depresses me Owen,…I think you need a hug,…I know I do.

      • Sorry Ermington. I sometimes see it as liberating. I am trying to move on but here I am again on Saturday morning!

  4. – But Australia is in this regard not different from other countries. Just look at Steve Keen’s formula for GDP:

    GDP = Income + change in debt.

    Multiply this entire formula with “change in” and then the formula becomes:

    Change in GDP = Change in income + change in (change in debt).

    If we assume that change in income remains flat then the formula becomes:

    Change in GDP = change in (change in debt).

    In other words: to get growth of GDP one needs to grow debt at an accelerating pace. OMG.

    – But other countries are “in the same boat”. Think e.g. Canada, Brazil, Middle East, ………………….

    • Know IdeaMEMBER

      Interesting conclusion. It sounds sound.

      One pedantic point: it is not so much a multiple as taking a derivative. Steve Keen’s viewing of the economy in terms of flows, and changes in flows, uses engineering mathematics. This is a reason his commentary makes some sense to this otherwise economically illiterate punter.

      • – “Illiterate punter” ?? Agree, he made some predictions that were way “off base”. But on the other hand, I think it’s more complicated than that. Economists have – at least – one problem: They have to look at the data/info that’s released. And that data/info always reflects of what has happened in the (recent) past. So, predictions for the future are always based on trends coming out the past.
        – Apart from that, Keen did some VERY good research on the dynamics of debt.

      • Know IdeaMEMBER

        For the avoidance of doubt, the reference to the illiterate punter was to me, not Professor Keen.

      • – This formula was mentioned in say 3 or 4 of Steve Keen’s (video-)presentations which were posted on his website in 2010 (2011 ??)
        – Perhaps it’s still available on his website or on YouTube.

      • Willy2 I used be a fan of Keen’s He at least used to be talking about debt when nobody else was. However he has been wrong about so many things because he ignores a large section of the economic model – the external account. Within all that is the capital account. GDP does NOT equal income plus increased debt. This ignores the fact we sell assets to foreigners that provide us with cash to increase GDP. It’s this sale of assets that maintain our currency in the face of chronic and severe CAD’s.
        That is why our economy IS different to others. We’ve had these assets to sell. Others have not. Everything is different. The US is the major reserve currency so it can get away with the whole printing to finance the CAD – until one day it can’t. Greece is different because it is backed by the ECB which has surplus countries like Germany in its fold and is itself a reserve currency. Middle East had oil. Of course this cannot go on forever. Aus runs out of assets to sell – at least desirable assets. The world is getting sick of holding US paper in exchange for real goods. The structure of the EEC is in trouble etc etc etc.
        I’m afraid it is a much more complex issue than Keen perceives.

      • – Nope. GDP equals “Spending” and thanks to going deeper into debt one can spend more than one’s income.

      • SweeperMEMBER

        Surely you agree with that. Put another way:
        Total payments for newly produced goods and services = total receipts for newly produced goods and services?
        Unless you exclude payments for inventories from total spending. In which case Total Income > Total Spending. In the national accounts payments for inventories are included as investment so Total Income always = Total spending.

      • Spending doesn’t equal income.
        Please note I would never dismiss what you say. In this case sweep you appear to be wrong in a basic assumption. T
        We juice GDP with debt then claim how wonderful the government is!!!!!

  5. I went out with an expert on AWS amazon and he told me the carnage is going to be much more severe than what people think – they are going to destroy retail here

    • Ronin8317MEMBER

      Price is not everything : Amazon will soon discover a huge segment of the retail scene in Australia is more akin to pay day lending. Will Amazon be offering interest free 5 year terms as well?

    • 10% discount isn’t going to completely do the job. People like to get in their cars and go shopping. Also if anything retail is doing itself in. It’s not easy to justify 50 places to buy an lcd tv. We’ll see.

      • alwaysanonMEMBER

        Prime ($99/year membership for unlimited free overnight shipping plus video/music steaming) plus low prices is their secret sauce. Anything nonperishable my mother in the States gets from them delivered to her door – even things like paper towels – without considering any other options anymore. And all they need is a Syd & Mel warehouse to hit most of Oz with that affordably.

      • Having lived in a country where Amazon is ever-present – it’s awesome, from the perspective of the consumer. And Amazon doesn’t destroy traditional retail – but it sure as sh!t makes trad retail pick up its game (and yes, the slow/crap ones will be destroyed).

        It also inspires direct competition to Amazon online.

        End result for the consumer is fantastic

    • Also, what would AWS engineer know about retail? He’s probably influenced by daily dose of corporate rhetoric.

      • Kevin he’s not an engineer – entrepreneur and successful businessman – owns successful software businesses that he started himself very smart and 10 years ahead of most others.
        He told me amazon is going to do much more damage to Australian retail than what most are expecting
        The names he mentioned were
        Woolworths
        JB hi fi
        Harvey Norman are just some of the names that share prices are going to be polvarised (that’s not up)
        He is an expert in AI (art intell) and we have been looking at dexter and fresh desk that we are building in our business
        We both own a company called MCLOWD that we have been building for 6 years
        It’s. Free SMSF software that links to ATO with market place and AI about to be imbed
        I believe MCLOWD will be the core SMSF software in Australia in 3-4 years

    • Bang on. The extent of the destruction will only be limited by their appetite. It may take many years also. But it will happen.

      People think Coles and Woolies supermarkets wont be affected. Not so. Although Amazon wont be looking to compete directly, their bulk items will chip into the reason for people’s “weekly shop” at Colesworth, and this is absolutely key. Because many people have more options across a variety of products in Aus, so when they can get bulk items cheaper via Amazon, the impetus to visit Colesworth regularly will decline. I can tell you from first-hand knowledge that is potentially devastating. Colesworth have globally fat margins but these are going to get crushed slowly until they’re on par with the RoW (think 5% to <2%).

      And companies directly in the firing line like Harvey can forget about it. They’re toast.

    • kiwikarynMEMBER

      About half of Amazon’s revenue comes from selling other companies products (and Marketplace is one of the few profitable parts of the business) so there is a limit as to how much it will “destroy” retail since it needs other companies as customers, not competitors. For example, Kogan plans to sell on Amazon when it comes, utilising its backend warehousing and logistics services. And for all we know, Amazon could be planning on price gouging Australians just like every other international retailer that has set up shop here. Why sell something at rock bottom when you can block them from your US store and charge them more.

    • ErmingtonPlumbingMEMBER

      I’m sure after it all “blows over” we’ll all sit back and say “It was the best of times, it was the worst of times,”

      • I am starting to wonder about this too. Why so long? Yesterday it was “coming this month” but then today, again, it has shifted to “coming next month”. Originally it was launching in April, now in June…. matybe?

        What’s the hold-up? Prospective investors can’t keep their money on ice forever. I would hate to think the idea was to keep stringing people along until they are so desperate that they don’t read the prospectus….?

      • arescarti42MEMBER

        Ditto with the delays – i’m getting a bit impatient.

        Even if it’s not ready to launch, how about a bit more information!

  6. Ultra defensive investment strategy for the short medium term ? I would think just O/S stocks is a bit courageous.

    • Ultra defensive investment strategy, huh?

      How about….

      Double moat
      Molotov cocktails

      Still some cash left? Then:

      Mine fields between the double moat
      Anti-aircraft machine guns
      Grenade launchers

    • Even StevenMEMBER

      You are assuming MB fund is intended to be ultra defensive strategy. I’m not aware they have ever said that. In fact, I would suggest that’s not sensible.

      MB fund could sit on cash and gold, but it’s hard to justify charge 50bps – 100bps p.a. fees when the returns are miserly. Any individual could do this themselves quite easily if they are so inclined. Why pay MB Fund for this?

      I instead see MB Fund as an alternative to other funds which have traditional allocations and tend to have a home-country bias.

      • Actually, ultra defensive investment strategy is a contradiction in terms. You can be ultra defensive or you can have investments.

  7. So if your advice is to get your money out of Australia, what is the logic to limiting the overseas portion to 70%?

    Speaking as someone who only holds international assets, with only my bank accounts in Australia.

    • Know IdeaMEMBER

      Standard risk management. However confident you are, the unknown in the timing means you have to maintain some of the perceived bad stuff (AU equities etc), just in case you are wrong. There is also the added complexity of converting and repatriating overseas assets if things go really sour.

      But what would I know.

      • ErmingtonPlumbingMEMBER

        “just in case you are wrong.”

        The one thing hanging over every decision.

      • On some ways I agree, except that in Australia’s case the local exposure is such a small percentage of the world market that I think it’s a good principle being applied incorrectly. To take it to an extreme, it’s like someone who lives in Hobart maintaining 30% of their portfolio in Tasmanian assets, despite their economy comprising a far smaller part of the whole. It doesn’t make sense on a State by State level, so the same logic shouldn’t apply at a country by country level.

        Or to take the same view at a slightly larger scale, why just Australia, rather than Australia / New Zealand?

        As an aside, repatriating funds is much easier today, especially if you are large.

      • Even StevenMEMBER

        Yes, standard practice and good reasons behind it – it is a natural hedge.

        Having some exposure to the country in which you live, earn, pay expenses etc is important. It means that the amount of your portfolio invested domestically is likely to keep pace with domestic developments. The further you depart from domestic exposure, the higher the risk your return will have a disconnect from your local costs, which is ultimately bad.

        Of course, if you were confident every decision you made was right and value-adding, there is no need to adopt this approach. Hahaha.

    • Because of the franking credit and the international transaction fees, the effective after tax returns on export oriented ASX listed stocks could outperform direct overseas investments. Having said that, allocating 70% of one’s total wealth to the global market sounds sensible.

      Meanwhile, Buffett and/or Munger can retire any time. Even though I expect that Berkshire is robustly constructed to maintain its performance, I also expect a temporary dip in its share price when that happens. So…… keep your gunpower dry in USD may be a sensible thing to do.

  8. reusachtigeMEMBER

    LOLOLOL!!! Heard it all before. Meanwhile, in reality, us smart hot lookers keep getting rich via our booming housing investments.

    • The Traveling Wilbur

      Have you considered launching an ETF for your IP portfolio to allow others to share in the benefits of your winning strategies Reusa?

      I’m in for sure.

    • Investors have been smashed over the past year, house prices up only 15% in Syd and Mel

      Carnage from the upward price crash

  9. AFR today: “Overseas debt investors who fund the banks must be confused given Australia’s financial system performed so well throughout the financial crisis.”

    lol

  10. Wow, the household effective tax rate was so low in the early 1970s. For real? I guess I need a time machine!!!

    • ErmingtonPlumbingMEMBER

      But, But, But the top PAYE tax rate was 66c in the dollar, back in them Socialist 70s

      • That’s what the government and the boomers want you to believe. That 66c in the dollar doesn’t mean much if the tax threshold it applied was set in the stratosphere, for example.

        Plus, the CGT was not introduced till mid 80s, so the tax base was different back then.

  11. I suspect MB is guilty of doing a single ended problem analysis for what will ultimately be a multi-lateral problem.
    Lets start with the obvious
    – Under what Global market conditions is it likely that Australia’s export revenues will plummet?
    – Under these global market conditions will there be a Capital flight to quality (and which assets will be viewed as quality assets)

    For me it really all comes back to China and their ability to transition into a role of global liquidity provider. Ultimately acquiring a seat at this table requires that the markets implicitly trust you, this means the markets will mark other assets against PBOC bonds, now what happens when the next shock comes along and we have the next round of capital flight? How will China respond? (if history is any indicator they’ll build and build like crazed madmen). ….what does this mean for Aussie exports.
    See what I mean, the problem is far more complex than can possibly be understood by analyzing it simply from an Australian perspective.
    In the end we’re F#cked if we dont fix our economy but the open question is still, who’s dick will we be taking?

    • ErmingtonPlumbingMEMBER

      Well they say long and thin, gets it in,…but short and thick does “the trick”. (Not sure who “they” are)

      I think we are in for long and thick,…ouch!
      🙁

  12. Nothing like an upward crash

    Things have been heading down for years apparently, yet somehow house prices were up around 15% last year in Sydney and Melbourne.. crash!!

    The plan is for the average dipstick to pay for what is needed, bump up their kids uni fees, bump up their tax bill and cut the tax rate (49% – 47.5%) for the better looking members of society

    It is those on higher incomes, cashed up boomers and our wealthy friends in the North that will continue to keep prices strong

    Average Bill Davies on $60k a year that now faces an extra $300 levy won’t crash the market..

  13. Jumping jack flash

    If the correction happens, then this correction has been coming for a long time, since the end of the mining boom actually, when, as you correctly point out, we leveraged the windfall from the mining boom tensfold at the banks and all bought property with it.

    Then, laden with debt, we believed the banks when they said that instead of hopelessly and helplessly indebted, we were all stonking rich. Well, those who were lucky enough to have assets before the great leverage were rich, and it is they who rewrote the rules so they could benefit immensely.

    Now, it is obvious to them that the party is over so we are now attempting to avoid the correction by executing the only option we have left, sell the country off to pay our debt.

    Enter the foreign investor, and the conveniently lax and poorly-enforced rules around foreign ownership. You think this is an accident?

    This action of “selling the country” was once touted as a joke, a perverse fantastical outcome that would never come about. Surely those in charge would never let it come to that, if it were even a possible outcome.

    But that is now the reality, and we don’t have much else left to sell.

    • Tassie TomMEMBER

      “Well, those who were lucky enough to have assets before the great leverage were rich”

      Brilliant comment! Boomers who had no (property) assets before the year 2002 have been just as f****d up as young people have been by all of this.

      It’s not a battle between old and young, it’s a battle between the incumbent capital (the old money) and the low-wealth income earner.

      One thing that really gave me the shits about Shorten’s budget reply is comments like “We support the Medicare Levy increase but only for people earning more than $80,000 – the WEALTHIEST 20% of the population” People on $50,000 who had a house (or two) before the year 2000 are doing much better than people on $150,000 who have came from nothing in the last 10 years. And unless there is a major asset price correction they will continue to do so.

  14. The HeraldSun online today is claiming that 30% of Vic housing sales went to foreign investors. That is totally insane.
    Young people an not so young have to compete with the whole world and subsidised speculators just to put a roof over their head.
    This county is run by total assholes.

    • 30% of RE sales are to foreign buyers? How much of the iceberg is out of sight?
      Add another 20% of sales to proxy buyers front-running the market for future immigrants.
      Our leaders have no plan for Australians other than decimation of locals.

  15. The interesting question now is: if we do get a house crash in Syd and Melb, will it take us back to prices lower than when MB was first calling an imminent crash — in some case, probably not!

    • Tassie TomMEMBER

      If the banks get into strife and have to restrict their lending, then “yes”.

  16. “Australia earns income by selling dirt to the world”

    Australia earns a large proportion of its income by selling its mines, farms, businesses and houses to the world!!!! This underwrites the value of the A$ so we can borrow heavily. All of which has totally wrecked a productive economy over six decades.

  17. Guys. Is this news or is it advertising a financial product? Suggest you put a disclaimer upfront.

    (Order now for a free set of steak knives!)

  18. SmartDipStick

    I would so really like to have MB manage my money.

    Thanks for the opportunity. Good on you guys – sense, finally, in a mad world.

    • “sense finally in a mad world”
      Careful you are not investing in what SHOULD happen. You have to follow the actual numbers. As Reusa, patrician and others would tell you this has not happened around MB.

  19. Tamash1MEMBER

    Great article. you had me right up to : ” We can help you do that with the launch of the MB Fund next month (with 70% international stocks).”
    no longer unbiased

    • Even StevenMEMBER

      Seriously? Your comment strikes me as churlish. The same comment could be made of virtually any financial product provider in the market.

      Technically you are correct. Leith, David, Damien have a product that they think is better than others available in the market. Therefore they are ‘biased’ towards their product. Any commentary they provide (if one were cynical) could then be argued to be with the sole or primary intent to attract people into their product.

      One thing undermines this argument. They have held these views for many years. You cannot argue that they have changed their tune/commentary because MB Fund was created.

      That’s why I find your comment churlish.

  20. What’s the minimum investment for the MB fund?
    Is there a PDS you can send me?

  21. The Patrician

    “That cracking sound is the politico-housing complex breaking”
    Nah…. it’s the sound of the all-time Sydney median asking house price record breaking…… again

  22. bleeterMEMBER

    too funny some comments here. Housing booms with LOW rates. Australia’s are comparatively HIGH. We aint seen nothing yet.