I have been watching the National Consumer Credit Protection legislation for some time now. It seems to be slowly creeping into other people’s radar as well. “Under the new National Consumer Credit Protection (NCCP) legislation, lenders are being more cautious when lending to the self-employed and small business owners who, unlike PAYG borrowers, do not
The “miracle” Australian economy (with its famous run of 24 years without a recession) is an amalgam of pre-modern and post-modern industries with very little in between.
Most economies run at least partially upon the productivity gains produced out of manufacturing and ‘making things’ but in Australia productive investment is supplanted with commodity exports (which make up half of exports) and the recycling of the resultant income is deployed as cash flow for borrowings offshore to pump house prices.
The former step is basically the selling of dirt, a pre-modern activity. The second step is managed via the sophisticated use of derivative markets and is essentially a post-modern activity.
Not that GDP cares given it is only the mindless measure of whirring widgets.
However, both of these activities systematically reduce economic competitiveness by inflating both input costs and the currency. “Dutch disease” by another name. This continuous “hollowing out” of productive activity means the broader economy relies heavily upon the non-stop import of capital, either in the form of debt or in the form of assets sold to foreigners, to generate ongoing income growth.
So long as the underlying income from dirt keeps flowing then the leveraging into house prices that supports consumption can continue, supported by both tax distortions and government spending.
If, however, the dirt income flow halts the hollowing out of modern industry will leave the Australian economy very exposed to a current account adjustment. We saw this in the global financial crisis but the flow of dirt income was restored sufficiently quickly to prevent any deep adjustment.
A second risk is that the debt accumulation simply becomes overly onerous for the underlying economy to service, also resulting in a current account adjustment. Well north of $1trillion of the debt is owned externally and household debt is a world-beating 186% of GDP so this is a real risk.
It is offset by a relatively clean public balance sheet that deploys fiscal stimulus in times of economic stress. However, in recent years, as both of the two above risks have increased, the public balance sheet has deteriorated as well, setting Australia up for a famous adjustment to end its famous bull run.
MacroBusiness covers all apposite data and wider analysis of these issues daily.
In my previous Macro 101 post a number of people asked me some genuinely good questions about the functional process of the banking system under in certain scenarios. These questions made me realise just how much more there is to say about banking operations. But more importantly it also made me realise how important it is
As usual, the media is beating housing finance data to death with a feather. It’s nothing personal, and this blogger could have thrown a dart to choose which overly-bullish article to deconstruct, but Adam Carr goes further than most so he’s up for a flaming. Using the new ABS housing finance commitments data, Carr argues the
The 21st century will be the century of old age, where declining birth rates meet longer life expectancies. This ageing of the population will affect many areas of the international economy, from consumption and growth to asset valuations. The impacts from ageing will likely be most acute in Western Nations, although some developing countries, most notably
Is the media deliberately obtuse? Following Myer’s complete wipeout, there’s a universal chorus of “cautious consumers” being the problem. It’s the weather, it’s the banks, it’s rate rises, it’s your grandmother’s cat. The problem with this “cautious consumers” line is that it implies a choice. The Australian shopper has apparently elected not to buy. Well,
So then, after today’s howler by Myer, reality has partially dawned on the market and the media: Retail is toast. The above chart shows today’s bloodbath for the stock. The only wonder is why it rose in the previous month. There are a number of explanations in the media for the result, most repeating the
As mentioned in my last couple of posts, new consumer protection legislation was introduced on January 1 to little media attention. Early last week I noted that the legislation could be having a greater impact on lending than many expected. However the true measure of the impact of legislation is just how loud the effected vested interests scream (hat tip
Systemic risk caused by non-prudent lending is obviously a danger to the economy. It is therefore important that the financial system has a level of legislation and regulation that ensures that risk is correctly measured and worn by those who seek to profit from it. The world’s financial regulators are slowly adopting Basel standards for financial regulation in hope that it will remove the
Cyclone Yasi has been upgraded to a Category 5 storm ( the highest level ) and on current estimates is expected to hit between Cairns and Innisfail at around 10pm tonight. The size of this storm is overwhelming, and the bureau of meteorology has announced that this is largest recorded storm ever to hit Queensland. Weatherzone
Oh yes, ladies and gentleman, fresh from the RBA, that’s another monthly moonshot in Australia’s terms of trade for January. That means: Over the past year, the index has risen by 49 per cent in SDR terms. Much of this rise has been due to increases in iron ore, coking coal and thermal coal export
A cyclone the size of the Northern Territory is currently bearing down on North Queensland. The emergency broadcast system sent an SMS to every Queenslander last night and according to the Queensland Premier Cyclone Yasi will hit the north Queensland coast with greater ferocity than devastating Cyclone Larry. Thousands of residents, as well as patients at Cairns hospital, face
Some boom. According to Bloomberg: Australian manufacturing contracted in January for a fifth straight month as measures of inventories, wages and supplier deliveries declined, a private survey showed. The manufacturing index was 46.7, compared with 46.3 in December, the Australian Industry Group and PricewaterhouseCoopers said in a survey released in Canberra today. A number below 50
The RBA’s credit aggregates for December were out yesterday and as always make interesting reading. Owner-occupier mortgage debt expanded at an annualised rate of 7.3% seasonally adjusted. Investor mortgages grew at 4.8%. Personal debt shrank at 4.2% annualised and business at 4.1%. All four of these figures are showing slow declines or low growth plateaus.
I have mentioned Veda Advantage previously. They produce a nice report on Australian credit demand on a quarterly basis. Today they released their latest report. For those who understand credit dynamics and its economic effects this report is very concerning. Personal loan enquiries rose 2% year-on-year during the December quarter, the first sign of growth after 11 consecutive
As Julia Gillard attempts to convince everyone that the flood levy is the “best thing for the country” I have to reprint the following lines. “It is not true to say to Australians that there is a big pile of money there that somehow I could just go and use,” Ms Gillard told the Seven Network today.
In my previous post I talked about the sectoral balance equation which is fundamental to understanding how an economy functions at a macro level. The function is also useful to understand the likely high-level economic outcomes of monetary and fiscal policy changes made by a government. If a government is running a surplus budget then they are taxing more
I note today that the PM has announced the introduction of a flood levy, some policy changes and cuts of $2.8 billion dollars in government spending including a cut of the national rent assistance scheme. That last point is something I want to discuss in a future post because it will have some interesting effects on housing. All
According to the SMH this morning: The Prime Minister, Julia Gillard, has all but confirmed that a one-off levy to help cover the cost of flood damage is on the cards but the bulk of funds will be raised by budget cuts. Speaking before the inaugural meeting yesterday with the 13-member taskforce of business and
FitchRatings recently released its 2011 Australia outlook report on structured Finance. The overall message from the report itself is not particularly interesting and has received little press. The report rates RMBS as stable, ABS stable but with some weakness and CBMS Stable/Negative, and has some discussion of the Queensland flooding on the RMBS market. Flooding
As we mentioned back in early January: There is no sadder story for an Australian than the closing of a pub, but 300 at once should probably signify a national day of mourning. Yet as debt issuance contagion makes its way through the economy, the banks have no choice but to start picking off the
Some more flood related news, after Goldman Sach’s and ANZ‘s $20 billion estimates and Julia’s A team. ABEAR has taken a punt at the export hit THE devastation from recent floods will cost the Australian agricultural sector $500-600 million, while coal exports will take a $2-2.5 billion hit in 2010-11, according to a new report.
Given that consumer confidence was already in the doldrums on the lead up to, and just after Christmas, it is little surprise that we note that one of the largest natural disasters in Australian history has given it a good kick while it is down. The Queensland floods have knocked the stuffing out of consumer
With one of the Banking overlords about to front up to a senate committee it is about time for the media to remind us all about the “pressure” they are under to raise rates. Australian banks remain under pressure to pass on higher interest rates to customers, as intense competition for funds from cash-strapped European
As we said when the Queensland disaster was underway. It is becoming an economic reality that the $5 billion price tag will be far too low; Today we note the ANZ is estimating a number 4 times the original estimate. The rebuild effort in the aftermath of Queensland’s floods could top $20 billion, according to
From the SMH today: The Retail Coalition is preparing to hand in documents to the securities regulator to officially incorporate its activities, enabling it to hire staff and ramp up its calls for urgent tax reform. The documents will detail plans to establish a new independent company with a constitution, board of directors, company secretary,
As we mentioned in a previous post, the Australian taxpayer is on the hook for Citi-group liabilities until 2015 Citi-group actually used the facility 1 week before it expired on the 23/03/2010 to secure $10 billion worth of 5 year notes. The Australian tax payer is on the hook for that $10 billion until 23/03/2015.
Today some Brisbane property owners woke up to this. 6 inches of horrible sticky mud absolutely everywhere. Luckily businesses on the river have insurance, which we hope will be paid out. For others it is a different story. Queensland Premier Anna Bligh and Prime Minister Julia Gillard have both implored insurance companies to be flexible
In the year following Hurricane Katrina, something unexpected happened to New Orleans house prices. They rocketed 27% over a period of months. According to USA Today “displaced residents bid up median prices”. This blogger thinks it unlikely that we will see such a dramatic price escalation in Brisbane. The floods are not as serious nor
We reported in December about the early signs that something interesting happened in November on the home finance front; something that at the time we thought would have forced Glenn Stevens to act against it. Today we note the ABS reported that something definitely did happen. The number of new home loans for owner-occupiers rose
It seems that ANZ is telling the world that jobs are surging and the economy is on fire. Australian job advertisements rose in December for an eighth month, reinforcing expectations that the economy will keep boosting employment. Jobs advertised in newspapers and on the Internet advanced 2 percent from November, when they increased a revised