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Australia is buggered. Macroprudential policy is coming, so sell housing now.
Topic Started: 24 Jul 2014, 05:16 PM (4,767 Views)
skamy
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It does not look as if anyone is interested in macro-prudential tools at this stage of the cycle. I disagree with them anyway as they tend to unfairly disadvantage poorer potential home buyers.

It seems very clear to me that house prices are growing and will be encouraged to grow until the economy gets unstable again, and that is some distance away in Australia.

Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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Bond
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The question is really what degree of protectionism is appropriate.

For me it should be as little as possible.

The real problem is that some ideologues talk as though a regulation free world exists or is desirable. Usually what they mean is that they don’t like regulations that cramp their style. the ticket clippers of the FIRE industries are the worst offenders.

I have no problem with off shore investors investing in Australia but I do not think that regulations designed to limit investment that is unproductive or not in the interests of the nation as whole are a problem in principle or in practice.

As to what the regulations should be will be a matter for debate and that is exactly what our politicians are elected to do.

I don’t see any problem in off-shore investors buying non government guaranteed RMBS issued over new housing or commercial buildings until the cows come home. If their loans prove to be duds they lose out but the structures remain.

I do have a problem with our govt guaranteed banks borrowing off shore to make bets on existing residential dwellings.

I also have a problem with the govt signing up future generations of taxpayers by issuing interest bearing bonds to offshore lenders. If govt are going to tie their hands by issuing interest bearing securities they should limit the sales to locals. Firstly the interest rate will reflect local conditions and not off shore monetary policy and secondly, local sales (and holdings) will not inflate the exchange rate.

I also have a problem with the sale of 100% interests off shore in Australian and a major capital assets like infrastructure. Most of our local competitors limit off shore interests to joint ventures to ensure that the purpose of the investment is of mutual benefit and entails technology and skill transfer.

If local companies wish to borrow off shore for commercial purposes I see no major problem as those loans are at risk and not guaranteed by the taxpayer.

As for goods and services, apart from quarantine measures, the case for allowing relatively unrestricted trade is much stronger.

That may not sound very consistent – largely free trade in goods – more restricted capital flows but consistency is over rated.

The best balance to be determined by ongoing public and political debate.

By people asking questions and people responding.
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Lou Ellen
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So, how does the crisis play out? I don’t know. It may not happen at all. China may keep the pedal to the metal against its own interests long enough for some other act of serendipity to appear. But if it does happen, and the risk is more real this week than ever before, then it will come in the form of a rolling current account crisis, perhaps like that of the United States but more likely a little slower.

Over the next year, and probably sooner rather than later, monetary authorities are going to have to tighten mortgage lending. Housing and increasingly banks (and non-banks) are out of control. The bubble is obvious enough that RBA and APRA credibility is now on the line. I reckon they’ll use macroprudential to do it because in the circumstances of the mining capex cliff rate rises will risk recession. Either way, they will be forced to slow housing one way or another and we’ll likely enter the next global crisis with stalled and falling asset prices.

At first, our banks will appear to be OK. Rising bad debts will be absorbed by rate cuts, automatic stabilisers and a little fiscal stimulus. We’ll also have the ongoing ramp up of LNG exports to support headline growth, even though income growth tanks with global commodity prices and China going ex-growth.

Renewed housing stimulus is very likely. It is cheap, popular and easy. House price falls will be reversed temporarily. And besides, there is nothing else! Even so, unemployment will rise to 8%.

But, a year or more post-crisis, with growth still weak, budget repair will become a pressing priority and the fiscal screws will tighten even as the economy fails to sustain a rebound. It is then that the AAA ratings will be stripped and Australia find itself with no room left for public spending, interest rates at rock bottom with the banks’ cost of funds stubbornly high and rising, house prices still sliding and unemployment getting higher still.

Some form of very expensive bank bailout will probably become necessary. The most likely scenario being a nationalisation of the Lender’s Mortgage Insurers, which will enable the government to channel tens of billions of dollars to the banking system on the quiet as it pays out premiums on dud loans hand over fist. Think of the US bailout of AIG for a comparison.

We will enter a long shakeout of falling house prices, massive budget deficits, fiscal austerity and the chase for export-led growth. The great blessing will be a dollar trading at 50 cents and rising Asian growth that will continue to support commodities, education and toursim.

The event will be of greater scale than the 1990 recession, and will probably be compared with the 1890s crash. Unemployment is going to run well into double figures.
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Mallard
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Thread killer

Lou Ellen
1 Aug 2014, 02:13 PM
So, how does the crisis play out? I don’t know. It may not happen at all. China may keep the pedal to the metal against its own interests long enough for some other act of serendipity to appear. But if it does happen, and the risk is more real this week than ever before, then it will come in the form of a rolling current account crisis, perhaps like that of the United States but more likely a little slower.

Over the next year, and probably sooner rather than later, monetary authorities are going to have to tighten mortgage lending. Housing and increasingly banks (and non-banks) are out of control. The bubble is obvious enough that RBA and APRA credibility is now on the line. I reckon they’ll use macroprudential to do it because in the circumstances of the mining capex cliff rate rises will risk recession. Either way, they will be forced to slow housing one way or another and we’ll likely enter the next global crisis with stalled and falling asset prices.

At first, our banks will appear to be OK. Rising bad debts will be absorbed by rate cuts, automatic stabilisers and a little fiscal stimulus. We’ll also have the ongoing ramp up of LNG exports to support headline growth, even though income growth tanks with global commodity prices and China going ex-growth.

Renewed housing stimulus is very likely. It is cheap, popular and easy. House price falls will be reversed temporarily. And besides, there is nothing else! Even so, unemployment will rise to 8%.

But, a year or more post-crisis, with growth still weak, budget repair will become a pressing priority and the fiscal screws will tighten even as the economy fails to sustain a rebound. It is then that the AAA ratings will be stripped and Australia find itself with no room left for public spending, interest rates at rock bottom with the banks’ cost of funds stubbornly high and rising, house prices still sliding and unemployment getting higher still.

Some form of very expensive bank bailout will probably become necessary. The most likely scenario being a nationalisation of the Lender’s Mortgage Insurers, which will enable the government to channel tens of billions of dollars to the banking system on the quiet as it pays out premiums on dud loans hand over fist. Think of the US bailout of AIG for a comparison.

We will enter a long shakeout of falling house prices, massive budget deficits, fiscal austerity and the chase for export-led growth. The great blessing will be a dollar trading at 50 cents and rising Asian growth that will continue to support commodities, education and toursim.

The event will be of greater scale than the 1990 recession, and will probably be compared with the 1890s crash. Unemployment is going to run well into double figures.
What a load of shit

Is this what members of MB are paying for? Might as well join David Icke
Edited by Mallard, 1 Aug 2014, 08:22 PM.
Collecting desperation.
Ex-Bp Golly April 2 2015. "I see with a slight overshoot -70% [fall in Sydney house prices] as being well within possibility"
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Chris
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Lou Ellen
1 Aug 2014, 02:13 PM
So, how does the crisis play out? I don’t know. It may not happen at all. China may keep the pedal to the metal against its own interests long enough for some other act of serendipity to appear. But if it does happen, and the risk is more real this week than ever before, then it will come in the form of a rolling current account crisis, perhaps like that of the United States but more likely a little slower.

Over the next year, and probably sooner rather than later, monetary authorities are going to have to tighten mortgage lending. Housing and increasingly banks (and non-banks) are out of control. The bubble is obvious enough that RBA and APRA credibility is now on the line. I reckon they’ll use macroprudential to do it because in the circumstances of the mining capex cliff rate rises will risk recession. Either way, they will be forced to slow housing one way or another and we’ll likely enter the next global crisis with stalled and falling asset prices.

At first, our banks will appear to be OK. Rising bad debts will be absorbed by rate cuts, automatic stabilisers and a little fiscal stimulus. We’ll also have the ongoing ramp up of LNG exports to support headline growth, even though income growth tanks with global commodity prices and China going ex-growth.

Renewed housing stimulus is very likely. It is cheap, popular and easy. House price falls will be reversed temporarily. And besides, there is nothing else! Even so, unemployment will rise to 8%.

But, a year or more post-crisis, with growth still weak, budget repair will become a pressing priority and the fiscal screws will tighten even as the economy fails to sustain a rebound. It is then that the AAA ratings will be stripped and Australia find itself with no room left for public spending, interest rates at rock bottom with the banks’ cost of funds stubbornly high and rising, house prices still sliding and unemployment getting higher still.

Some form of very expensive bank bailout will probably become necessary. The most likely scenario being a nationalisation of the Lender’s Mortgage Insurers, which will enable the government to channel tens of billions of dollars to the banking system on the quiet as it pays out premiums on dud loans hand over fist. Think of the US bailout of AIG for a comparison.

We will enter a long shakeout of falling house prices, massive budget deficits, fiscal austerity and the chase for export-led growth. The great blessing will be a dollar trading at 50 cents and rising Asian growth that will continue to support commodities, education and toursim.

The event will be of greater scale than the 1990 recession, and will probably be compared with the 1890s crash. Unemployment is going to run well into double figures.
HAHAHAHAHAhahahahahah,

Oh sorry, were you being serious?!

Mmmmmmm, this is not going to happen you know that right? Australia's economy is slowing but it is still very healthy. Abbott and Co have been spruiking economic disasters but they know we are very healthy. In fact I believe Hockey was put under pressure lately by a NZ journo who asked in round terms 'why would we invest in, or up a trade partnership in a nation that your government is actively talking down as being in economic turmoil'

Hockey then went on to comprehensively discount any looming economic disasters, in fact he boasted how strong the economy is. I'm sure he had little choice in that he couldn't rat shit the joint but he seemed to really emphasis that Australia has NO crisis now, or in the near future.

For what you are saying to come to fruition would already be on the radar and be a reality for a lot of people. The 90's down tryn happened almost in an instant and continued on a steady trajectory down, this is not even close to happening so I poo poo your advertising here that Oz is about to meet financial oblivion until you can produce something better than conjecture.
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Research
Unregistered

We should be doing what New Zealand has done with macro-prudential, restricting housing finance to some deposit ratio or income ratio (or a combination of both), and maybe drop personal interest rates. But they may only have a superficial impact – because rates are going lower – a lot lower before the end of this cycle…

In either case I am not sure what we can do about dropping the dollar significantly in the short-term. When a number of export-oriented countries actively manipulate a series of competitive currency devaluations to regain/retain a competitive export advantage, as any student of Game Theory will recognise that an “equivalent retaliation” (or tit for tat) strategy will invariably ensue; ultimately all export-oriented participants will have to participate or risk being left at a disadvantage.

However, the Australian Reserve Bank has decided to take the high moral road and has not to actively lower the AUD (just talk about it). Consequently, this will be the first mining downturn in history where our currency has not followed. Which incidentally has lost me a bit of money… bastards, I thought it a sure bet.

The great irony of the situation – is either (a) Game Theory dictates that if the RBA/Government does not participate then we will suffer major trade distortions, possible asset inflation, coupled with import cost deflation. We will lose our manufacturing (tick), but be able to buy foreign cars cheaply that have been massively subsidised by the above currency wars (tick); or (b) There are enormous costs participating in active currency deflation, involving increasing Central Bank reserves/debt, higher import inflation, higher domestic inflation over time, substantially higher interest rates in the long-term (not the short-term of course) and the protection of inefficient industries.

But I get the nagging feeling that we are taking the worst path of all, we have no manufacturing left, and ultimately we are a commodity currency, so a high exchange rates will ultimately destroy our primary and mineral producers. The RBA currency strategists just haven’t really thought this one through carefully!!!! A wee bit of protection never hurt anyone… in any case, its all a bit late to change course now, it should have been considered five or six years ago.
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Guest
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Chris
1 Aug 2014, 06:30 PM
HAHAHAHAHAhahahahahah,

Oh sorry, were you being serious?!

Mmmmmmm, this is not going to happen you know that right? Australia's economy is slowing but it is still very healthy. Abbott and Co have been spruiking economic disasters but they know we are very healthy. In fact I believe Hockey was put under pressure lately by a NZ journo who asked in round terms 'why would we invest in, or up a trade partnership in a nation that your government is actively talking down as being in economic turmoil'

Hockey then went on to comprehensively discount any looming economic disasters, in fact he boasted how strong the economy is. I'm sure he had little choice in that he couldn't rat shit the joint but he seemed to really emphasis that Australia has NO crisis now, or in the near future.

For what you are saying to come to fruition would already be on the radar and be a reality for a lot of people. The 90's down tryn happened almost in an instant and continued on a steady trajectory down, this is not even close to happening so I poo poo your advertising here that Oz is about to meet financial oblivion until you can produce something better than conjecture.
You have nothing here Chris. The bloke makes some good points, you don't seem to be able to argue any, all you say is mmmmmm Youu know its not going to happen...

And then you use capitals to say that Joe hockey said NO crisis now or in future.

So you are gulliable enough to believe shit from politicians mouths.

Like the last treasurer swann, who PROMISED us we will have a budget surplus by 2012, did you believe that shit too Chris, did you believe that lie too Chris ?

Did you believe Hillard when she said there will be no carbon tax on her watch, did you believe that shit too Chris, that lie Chris, eh ?

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Bond
Unregistered

Macroprudential is a such a marvellous concept.

At core it is about introducing some regulations concerning capital.

You can regulate who gets loans and the terms on which they do it – like a surgeon in a cardigan or suit.

Or you can undertake some more general actions that will limit the supply of capital generally for certain purposes.

And when the suppliers of those regulated sources of capital are offshore the general actions will put downward pressure on the currency as those off shore interests will have no need to acquire $AUS as the reasons for doing so (to buy bonds or to lend to deposit at terms with our banks) have been regulated away.

If the commonwealth govt limited the holding of govt securities by off shore parties the currency would decline.

Likewise a direction by APRA that the banks were to wind down their off shore borrowing for local mortgage lending by 5% a year until it was zero the currency would decline.

Two simple regulations that would reduce over 5-7 years the off shore demand for $AUS by over $AUS700B.

Do that and you don’t need to worry about bankers administering a borrower by borrower set of restrictions.

If we are serious about encouraging business and investor confidence and household confidence we have to stop kidding ourselves that we can live off the saving habits of foreigners and just flog off claims on our future incomes, our capital and non-renewable resources.
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