Lowe, ScoMo lock-in house price smash

Whatever it takes has taken on a different meaning Downunder. Oversees it means whatever it takes to keep asset prices high to support economic growth. In Australia, it is now whatever it takes to crash the property market.

Bravo is all I can say. We’ll benefit in the long run.

On the monetary side, the RBA has put the cue in the rack. There is no more support coming. This will drive the Australian dollar higher and inflation even lower. Interest rates can go no lower, either, so mortgage relief is exhausted.

On the fiscal side, ScoMo has locked in the fiscal cliff. He is pretending that it’s now a slope but it isn’t. Via David Crowe:

Scott Morrison has made a crucial decision about income support on the basis of an optimism other Australians may struggle to feel.

The Prime Minister thinks 2 million workers can be taken off the JobKeeper wage subsidy by Christmas.

This is a huge bet on the recovery, which Morrison calculates will continue at the very time large parts of the country are still trying to stop a spike in coronavirus infections.

…The full JobKeeper payment falls from $1500 per fortnight today to $1200 from the first week of October and $1000 from the first week of January, before stopping at the end of March.

There is greater pain for anyone on JobKeeper who was working fewer than 20 hours per week before the pandemic. Their new rate will be $750 from October and $650 from January to March.

The result will be a wages accident of such epic proportions that it is difficult to know where to look.

How is this recovery to transpire amid convulsive outbreaks of virus? It’s not. It won’t.

This double-headed policy exhaustion is going to drive a wages calamity amid mass unemployment. The output gap tells the story:

The borders will remains shut as well, meaning rents keep crashing amid structural oversupply.

Banks will begin to apply their gradual tightening from Q3 and their loan losses will mount for mortgages and SMEs. This will keep credit conditions tight.

Specufestors will increasingly be forced and volunteer to sell. Even FHBs may realise that they should wait.

Crashing incomes are converging with withdrawn stimulus just as asset prices accelerate to the downside and there’s no monetary put. The virus shocks will keep coming to boot. Quite possibly a bursting of the stock bubble as well.

A second-round shock is coming to Australia as the housing market adjusts swiftly to the new and hostile reality.

David Llewellyn-Smith
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Comments

  1. BoomToBustMEMBER

    And then this is the second lockdown in Vic that may transit to stage 4 shortly leading to an even deeper economic impact. However I was discussing with a friend this morning that the roads are no where near as empty this time around. The first lockdown had the roads deserted, it was errie, this time there is less traffic but still significantly more than last time. People are weary of lockdown, if Dictator Dan doesnt get it done this time I dont think he will get a 3rd chance.

    • On the radio this morning they interviewed a researcher who looks at data Google makes available. It confirmed what you and your friend have noticed. The drop in driving and trios outside is not as large as when first implementation of restrictions.

    • Strange EconomicsMEMBER

      And I just went down a street where every apartment block of 10 units has a for lease sign outside…Rental vacancy about 10 % now in the outer suburbs as well as city centre.. Only in the genteel inner city where the journos live it seems lower.

      • You know you always here a statistic and you think is it true….
        We’d heard there were a large amount of empty retail spaces in chapel street
        So we decided to drive down there (on the way home from work)
        I’d say it’s btw 25% to 35% for lease, huge amount closed
        I’d say drive down in 6 months it’ll be half for lease

        • I was there in January before Covid really hit and I was shocked to see probably 10-15% shuttered even then.

    • I stocked up on a few bag sof popping corn during my Feb/March pre pandemic prepping stock up. I’m so glad I did. Every second week or so I make a big batch and it’s just yummo. I sit down to read our watch or something that deserves 🍿😋

    • BoomToBustMEMBER

      Da Wife went to Ringwood Costco yesterday, she said it was eerie quiet this time around which is the total opposite to the last lockdown.

    • Jumping jack flash

      Keeping with the spirit of the times, I bought a popcorn maker on AfterPay.

  2. robert2013MEMBER

    That chart is incomprehensible. The title seems to have little to do with the items in the legend. No units are given, axes aren’t labelled. What is the output Gap anyway?

  3. BrentonMEMBER

    Good! Australia will be so much better once our entire political economy is not geared toward unproductive property speculation.

    Take the pain and get some structural reform going.

    Full credit to Lowe if he follows through. We have too many real world examples of how damaging unconventional monetary policy can be.

    • chuckmuscleMEMBER

      Agree. For those of us thinking beyond the next 6 months, difficult to see any downside from a structurally lower cost of living.

  4. At first, Lowe floated a 5% rebound. Then it was Morrison, on 3.75%. What equally fanciful number will Frydenberg produce for his mini-budget?

  5. DominicMEMBER

    Whatever Lowe and ScoMo say right now is irrelevant. Their proverbial hand will be forced. ScoMo’s ideological attachment to austerity will be unwound when the economy starts to crater and Lowe will find religion and print to fund the massive deficit the Govt will continue to run. In addition Lowe will be buying RMBS by the fistful. None of this is their decision anymore.

    The debt-based money system bed has been made and they will be forced to lie in it.

      • and the wage / welfare policy consequence that I think is very much intended is to have locals to the work that temp visa workers have done for the last decade or more.
        Dirty work, but some Aussie going to have to do it…

        • It’s hard work, yes. But it’s real and vital work. If it’s paid adequately for the value it delivers, Aussies will do it.

          • This – pay me a decent livable wage (up for debate exactly what that is) and give me job security and I’ll do nearly anything.

            If it’s more of the pre-covid zero hour casualisation multiple jobs at a time on crap money making it hard to stay afloat and I’ll be very resistant to whatever Scummo attempts to force on me.

      • “ Without open borders it is over.”

        Very much concerned that they know this, and they see the solution here as well…

  6. There is some prospective gloating afoot here. Let’s wait until it actually happens.

  7. Dave666MEMBER

    Ummm – What about the very positive news of vaccine results. All going well they say roll out by October. Thats only 3 months away. Sure, it might take a year or two to roll it out to everyone, but this vaccine news is a game changer for sentiment and economies.

    • If that proves correct then it would change things. But lot’s of research is showing antibodies collapse very fast so not workable for vaccine.

      And as you note, not until it arrives.

      We shall see.

      • Did you note the T cell piece of that story?

        to the OP, on the Oxford vaccine, I think I read they’re talking about AstraZeneca being able to produce 1B doses by end of year? Be interesting to see how that’s distributed.

      • PalimpsestMEMBER

        At the risk of sounding excessively “rose tinted”, the COVID resistance is dropping rapidly in those that catch COVID by natural infection, If COVID is like measles and destroys the immune system for several years, in those naturally infected, then that might not mean that a vaccine will fail. I’m hoping that the COVID vaccine, like SARS, will provide at least a year’s protection. Even 3 months would do me for the first vaccine. I’d certainly choose to go in every 3 months.

        The only downside with the Oxford one is that it is a ‘whole virus’ model so it will need to be redone for every major variant, i.e. seasonal.

    • DingwallMEMBER

      The news is like people talking of their stock market adventures….. they inevitably talk about the positives not about the negatives. And if the company making said vaccine is listed, well negatives come out at the moment of truth.

    • Ever notice all those breathless articles in the news about the latest game-changing breakthrough treatment for cancer? Have you also noticed that a lot of people still seem to be dying from cancer? File this news with those articles.

      • darklydrawlMEMBER

        Yes… Exactly this. Lots of stuff looks great in testing and trials – but falls over further down the track.

    • How epic will the fear and crash be if they get x% of unknown side effects a few months after release of a vaccine. …. popcorn shortage to come

    • darklydrawlMEMBER

      I would be wary of any vax that is rolled out so fast. There is a reason these things normally take years to get approval for use in the general population. I wouldn’t get to excited about any potential ‘cure’ headlines at this stage.

      • The Vaccine Trust Problem.
        https://www.nytimes.com/2020/07/21/podcasts/the-daily/coronavirus-vaccine.html

        A rational concern to hold, for sure.

        Excerpt of transcript:
        Jan Hoffman:
        I think even a greater factor than the administration itself is the speed with which it’s being produced. Most vaccines take about a decade to produce. Millions and even billions of dollars are poured into research for them to prove nothing. We don’t have an H.I.V. vaccine, which has been in research for 20, 30 years. There’s no vaccine against breast cancer, which has been under research for arguably, even longer. And so people are thinking, well, how can you have a vaccine that is safe and effective come to market in six months? It boggles the mind.
        And so, for someone who is a vaccine hesitant, who is a vaccine skeptic, or even is just a pro-vaccine person, they are so apprehensive about the speed at which this is being produced that they are willing to say, “Let someone else go first in line. Not me.”

    • billygoatMEMBER

      Aaah the vaccine gravy train, rainbow unicorn or whatever you want to call the BS vax narrative.
      Headline grabs more like it & lots of sciency folk ‘researching cures’ in the govt & private & public donation uni affiliated labs just like the can cer mob who have, decades later, yet to produce a ‘cure’ or vax I nation

  8. SnappedUpSavvyMEMBER

    may as well get the inevitable RE correction over with during the pandemic so the LNP/Lowe will have an excuse

  9. I have a feeling the borders won’t be shut. Just a matter of time before the party donors push that through.

    • billygoatMEMBER

      Masks for everyone as cliched NEW NORMAL protective g all & sundry from the pesky vir a$$ will allow borders to be opened to incoming home buyers / renters. Return to normal.
      Masks in production with tracking action like failed Covid safe app. It will beep when you’re within 1.5 of another breathing human & plot your location GPS style.
      Part of wardrobe in next century like neck ties & hats.
      Brought to your neighbourhood supported by local brotherhood fellowship:))) Careful what you wish for

  10. ‘Crash the property market’. I’ve heard that somewhere before. Define crash, or smash, in nominal percentage terms. Just so history isn’t re written in the future.

  11. DingwallMEMBER

    I have the deck chairs, red wine, a few marshmallows (they do have a use buy date though) and extra logs to keep the inferno burning….. Just need it to start ……….

    • Theyve barely budged yet. 2% down for Sydney… So he’s not exactly failing at it.

    • ZevombatMEMBER

      Can’t save every business let alone every property investor…kind of evil to be feeding FHB into the machine this year though. Guess the empathy training didn’t take.

  12. Scott Morrison has made a crucial decision about income support on the basis of an optimism other Australians may struggle to feel.

    Scott earns $3,072 per day. This is more than JobKeepers or Seekers get in a month. No wonder his little brain feels optimistic.

  13. Someone who knows a thing or three about vacines! Dr. Kayvon Modjarrad, director of the Emerging Infectious Diseases Program at Walter Reed Army Institute of Research
    https://www.realvision.com/shows/the-interview/videos/inside-the-covid-19-vaccine-project

    Dr. Kayvon Modjarrad, director of the Emerging Infectious Diseases Program at Walter Reed Army Institute of Research, joins Ash Bennington to explain what the Department of Defense’s coronavirus vaccine research project is doing to combat the pandemic. Dr. Modjarrad breaks down the different factors that have culminated to increase the difficulty of creating a vaccine. He shares details on the vaccine that his research group is creating with nanoparticles that bind to the virus itself. Finally, he answers questions like, “how long will vaccine deployment take?”, “what effects do mutations have on the success of vaccines?”, and “how does one protect themself from COVID-19?” from the perspective of an infectious disease doctor on the inside of the scientific effort to mitigate this deadly pandemic.

  14. The90kwbeastMEMBER

    DLS, you keep saying the RBA have put the cue in the rack, but I disagree. Check out the below paragraph:

    “After discussing these possibilities, the Board concluded that that there was no need to adjust our package of measures in the current environment. The Board has, however, not ruled out future changes to the configuration of this package if developments in Australia and overseas warrant doing so.”

  15. Mike Herman TroutMEMBER

    Anyone who thinks a bomb hasn’t gone off under housing in Melbourne, I give you St Kilda East. The second round of dumping on nature strip has begun. For lease everywhere. Staggered.

  16. reusachtigeMEMBER

    Hey thanks for the clear warning! Much appreciated. The powers that be will now take affirmative action to rectify this potential calamity.

  17. as I said so many times before, with banks already being bailed out by RBA there is no single interest among ruling elite to keep house prices up while there is a great opportunity to crash them and create an opportunity for the rich to do another cycle

    • Jumping jack flash

      Still, they had better be careful. There’s a lot of debt attached to those assets.
      But, you are probably right. So long as the banks get their expected amounts of “interest” they’re all good. Who cares where it comes from.

  18. Just spanner in the works.
    200+k ppl can now get both (i.e. JobSeeker and JobKeeper). How good is it aye?

  19. Martin Armstrong over his predictive track everything computer reckons there is a much nastier pandemic coming in 2022.

  20. Jumping jack flash

    It seems as if it is too late to avert a collapse now so they’ve decided to “pull it” and let the place go to hell in a handbasket. This has been brewing for about a decade, and was completely obvious to anyone who was looking since about 2017/18 and the decimation of retail.

    The debt simply wasn’t growing fast enough to sustain the existing debt. The debt was sucking too much capacity out of the economy, 100 billion dollars every year. They resorted to periodically chopping interest rates to boost debt eligibility, but hardly did anything to tear down the other barrier to increasing debt, the cost of buy-in to the debt ponzi which became excruciatingly high as house prices rose – this “locked out” FHBs, and that was another clue.

    Now the banks have all but shut down new lending and we are experiencing massive debt deflation, and this has little to do with the virus, except that it brought this event forward by about 10 years. All of these “emergency” measures would have certainly been required within the next 10 years even if there wasn’t a virus. We had hit 0 rates. The debt wasn’t growing fast enough for many years before that. We hit the wall on debt. We were essentially done with that growth model.

  21. bleeterMEMBER

    some saw the AUD at 0.45…….dipped your toes back in equities yet ….or gold….or silver……or iron ore,,,,,platinum???