Of course, the cash rate didn't even fall out of the double-digits until the later half of '91 and only fell as far as 4.75% (after a couple of years) - far higher than we are currently sitting at now. And this followed Australia's worst economic shock since the Great depression. How can that be?
I don't think it takes a genius to figure out that our private sector is so remarkably-heavily indebted today - largely for mortgage debt - that we have had to take interest rates to not that far above effective zero in order to keep things ticking over. Monetary policy has almost reached it's limit as an economic counter-stabalization tool - and we haven't even been hit by a serious economic shock yet.
The world has changed since the 90's skamy. Interest rates are getting close to as low as they can possibly go. Private sector debt is around the highest on record and house prices are now mainly driven by speculation rather than the need for shelter. It doesn't remotely resemble to the world of the 90's. What will happen if a severe shock strikes under these conditions?
Leftee we do not carry high debt that is a bear myth.
Because we have a wealthy economy many more people can take on debt to buy homes etc and this makes our aggregate statisics look high compared to other countries. In Australia most people pay less than 30% of their income on debt and we have incomes that are mostly high enough for this to enable home purchase. Australia is more egalitarian country with good pay for work that is lowly paid overseas eg trades.
Quote:
Significantly, however, Australia is more equitable than most wealthy nations. Of the top 50 biggest economies, only Belgium, Italy and Finland have less of a difference between median and average wealth.
The greater the difference, the more wealth is in the hands of the richest. Australia's average wealth is just 1.8 times our median wealth; by contrast the UK's is 2.2 times greater, while the US is second worst out of the top 50, at 6.7 times. Russia is the most inequitable, with its average wealth 12.6 times that of the median wealth.
From the RBA:
Quote:
High-income households generally have higher debt-to-income ratios than lower-income households; median debt-to-income ratios increase from 60 per cent for those households in the second income quintile to over 200 per cent for the highest earners.
It is this more even distribution of wealth that skews the debt to income ratios relative to other countries. In most economies the highest wealth and incomes hold the majority of debt. As we have a greater proportion of people earning in these upper brackets our debt ratio is skewed. I have actually tried many times to explain this to you I am sure.
When you look at actual debt the story is completely different people are very very far from being over indebted From the last RBA household wealth bulletin
Quote:
The distribution of debt is also highly skewed: the top 20 per cent of income earners owe almost half of all debt outstanding, while one-third of households owe no debt and over half owe less than $50,000.
The financial savings NOT INCLUDING HOME EQUITY of Australians is enough to pay of their debt liabilities twice over. AUSTRALIANS ARE NOT HEAVILY BURDENED BY DEBT.
What is the point of believing something that has no basis in fact? If you cannot accept that in reality Australians are not in high levels of debt you will constantly be unable to understand our economy.
Jimbo
27 Sep 2014, 11:40 PM
So why have prices risen less than inflation in the last 12 months and fallen in the last quarter?
Why are vacancy rates up by so much in the last year?
It is all well and good pontificating about why prices won't fall, but the fact is that they are falling. How do you explain that?
We are talking about whether there will be a crash or not. One months data from one supplier during the winter (when prices historically moderate) does not make a crash. Median house prices can fall if there are more people buying in lower price brackets, actual prices for individual homes can still be rising.
I would ask you why does WA still have the lowest levels on unemployment in the country if, as you claim, so many jobs are being lost.
Vacancy rates get tight during recessions and downturns and increase as people buy homes again.
To a buyer waiting to buy, a price rise is an opportunity loss whether it is above inflation or not. They still have to find more money to buy and they have wasted rent money that could have been used to alleviate debt on a home.
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.
And yet the amount a first time buyer has to borrow to buy a house has never been higher.
Where does that show up in your analysis Skamy?
Pretty sure that mortgage=debt in lots of real money that has to be repaid,
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
OK, so can you explain how with all of this wealth, low unemployment and record low interest rates, price increases are below CPI in the 12 months to date and negative 1.2% in the quarter to date?
If everything is so great then prices should be increasing?
Also, why is immigration to WA falling?
Why have vacancy rates increased so much on a year ago?
Immigration to WA is not falling according tothe latest ABS data. Can you post any links on this?
Veritas
28 Sep 2014, 01:39 AM
And yet the amount a first time buyer has to borrow to buy a house has never been higher.
Where does that show up in your analysis Skamy?
Pretty sure that mortgage=debt in lots of real money that has to be repaid,
Veritas - the amount FHBs need to borrow relative to income has rarely been better. It is just not true to claim new buyers are more stressed by the debt they are required to take on.
FHBs are also buying homes that have had not increased in price much since 2007. You personally may think you will get a better time to buy but most of your peers disagree with you. First time buyers are buying away in WA. The only thing holding back the Perth market is hesitancy in the upgrader market.
You have been fed lies about the Australian economy for years why do you still trust these people and believe that they have the interest of young home buyers at heart? Surely you can see by now who benefited and who lost from all the doomtime media agendas. Why doyou still believe this rubbish?
Prop Cycle
26 Sep 2014, 10:04 AM
Sorry i didn't make it clear.
I think it could be an Asian thing, or maybe a Chinese thing.
Owning a home is something of very very high priority to us.
Look at the property market in Singapore, Hong Kong, China, Malaysia, Taiwan. Look at the property market here in Australia.
IMHO, it is a first generation migration thing.
The Irish migrated throughout the world and worked several jobs to create better opportunities for their families and still do this today. Migrants from Russia etc all work hard, take up the good school places and live frugally to invest in the future.
New migrants move for economic opportunity and they will not expect large disposable incomes, so they will spend more of their income on investment in the future.
Second generation Irish, Chinese etc are much more like the Aussies
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.
I'm losing interest in what you have to say skamy because you seem to be prone to just making things up as you go along.
You and I appear to be here for different reasons - I am here to ascertain the truth (or otherwise) of the situation while you are here to win arguments. But while winning and argument does not require the truth, reality is not a jury. You may convince a jury that black is in fact white, but you will never actually succeed at magically turning black into white even with the best (or simply most persistent) argument that it is the case - at the end of the day black will still be black and white will still be white regardless.
To cheer on a long price boom in something that everyone needs, that most people desire to own and that is financed mostly by debt, and to then argue that debt is in fact not now high as a consequence is an argument detached from reality. You just prattle on with an endless stream of conflicting arguments, randomly cherry-picking facts and figures that suit while ignoring that which does not suit.
But none of this is of any particular consequence to me personally. I'm waiting to see if the severe blow to highly-paid mining jobs that has just been dealt here in Central Queensland has any bearing on property prices in a smallish place like Gladstone where so much housing has been bought up by investors over the past few years. Be interesting to know how many investors were local resource sector workers versus how many are from out of town.
Immigration to WA is not falling according tothe latest ABS data. Can you post any links on this?
Net overseas migration for March qtr 2012 was 16059, 2013 was 10960 and this year was 9593.
Interstate migration this March qtr was 256 down from 2283 for the same period last year.
This is from the ABS release on Thursday 25th September.
Also, applications for 457's to WA for the first half of this year are down 43% (immigration department).
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
If you read your article you will see that the problem lies in the funding model for new projects - IT DOES NOT LIE IN REDUCING THE ACTUAL PROJECTED INCOME FOR PROJECTS LIKE GORGON.
1. There has been massive price inflation since GORGON was planned, recent lows were down from unexpected highs. Spot LNG prices have been rising again since July (a gain of 41%) so the article is already dated.
2. Gorgon has locked in 65% of its supply it is a 30 year project and this problem if it does hit will take years to have an effect.
So maybe your article was a bit hasty on its negative analysis.
What is happening is that there are expectations of increased supply from the US and from Africa that is hindering the signing of long term contracts as there are expectations of future price drops. These long term contracts are needed to fund expansions and new supply.
However, if this persists it could in fact lead to higher prices long term if less new projects can get funded.
Don't forget that for every article like the one you posted there areplenty of upside projections eg huge new demand coming online from Asia. Eventually Asia will move away from coal but when Gas demand goes to coal demand and vice versa Australia has a two way bet.
There is no doubt that Australia will prosper when these supplies come online.
To predict a crash in an economy set to become the largest exporter of LNG in the world is a silly notion IMHO.
Skammy,
The article states:
"Chevron initially planned to sell at least 85 per cent of Gorgon output to long-term customers, betting that rising demand in the world's biggest LNG consumer, Asia, would keep prices high enough to pay back project costs, originally pegged at $US37 billion in 2009."
"With a price-tag of $US54 billion, Chevron's Gorgon project is expected to start up in mid-2015 but has so far locked in sales for just 65 percent of its share of capacity, which leaves it highly exposed to the risk of falls in the spot price. Chevron intends to trade its unsold long-term output on the spot market."
So the business plan was to lock in 85% of production to long term contracts when the project price tag was $US37bn "to pay back project costs".
The price tag has since blown out to $US54bn and they only have 65% sales locked in at long term contract rates.
All up, the Gorgon project is carrying an additional 46% debt burden, with 20% more of its revenue is at risk, contingent on spot prices which customers are expecting to fall well below long term contract rates.
Now let's look at some real contract vs spot prices.
So are you still going to claim that when the US starts exporting gas onto the spot market at <$5 MBtu and high volumes, that the extra 20% of Gorgon's revenues which were expecting to yield $14 MBtu could in fact only yield as low as $5 MBtu, the bottom line won't be impacted?
A 50% price reduction on 20% of sales is a 10% revenue cut. Don't forget the 46% cost blowout either.
With regards to your comment: "What is happening is that there are expectations of increased supply from the US and from Africa that is hindering the signing of long term contracts as there are expectations of future price drops. These long term contracts are needed to fund expansions and new supply. However, if this persists it could in fact lead to higher prices long term if less new projects can get funded."
You have just summed up the boom and bust nature of the resources industry perfectly.
Consumer's aren't going to buy gas at a 50% premium today out of some altruistic notion of saving others from paying higher prices tomorrow. If one distributor will buy and on sell gas off the spot market at $5 MBtu right now, and the other $14 MBtu via long term contracts, who are you going to buy it off?
When the business case rises, resources development and CAPEX follows. When the cost to develop the resource is higher than the market is willing to pay for it, CAPEX disappears. The latter is our current state and which is why we have a CAPEX cliff.
Again I have never said the economy would crash, I've only said the prospects for future LNG expansion aren't as peachy as some expect.
Net overseas migration for March qtr 2012 was 16059, 2013 was 10960 and this year was 9593.
Interstate migration this March qtr was 256 down from 2283 for the same period last year.
This is from the ABS release on Thursday 25th September.
Also, applications for 457's to WA for the first half of this year are down 43% (immigration department).
Ok Thx, I had only looked at population which is still growing
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.
"Chevron initially planned to sell at least 85 per cent of Gorgon output to long-term customers, betting that rising demand in the world's biggest LNG consumer, Asia, would keep prices high enough to pay back project costs, originally pegged at $US37 billion in 2009."
"With a price-tag of $US54 billion, Chevron's Gorgon project is expected to start up in mid-2015 but has so far locked in sales for just 65 percent of its share of capacity, which leaves it highly exposed to the risk of falls in the spot price. Chevron intends to trade its unsold long-term output on the spot market."
So the business plan was to lock in 85% of production to long term contracts when the project price tag was $US37bn "to pay back project costs".
The price tag has since blown out to $US54bn and they only have 65% sales locked in at long term contract rates.
All up, the Gorgon project is carrying an additional 46% debt burden, with 20% more of its revenue is at risk, contingent on spot prices which customers are expecting to fall well below long term contract rates.
Now let's look at some real contract vs spot prices.
So are you still going to claim that when the US starts exporting gas onto the spot market at <$5 MBtu and high volumes, that the extra 20% of Gorgon's revenues which were expecting to yield $14 MBtu could in fact only yield as low as $5 MBtu, the bottom line won't be impacted?
A 50% price reduction on 20% of sales is a 10% revenue cut. Don't forget the 46% cost blowout either.
With regards to your comment: "What is happening is that there are expectations of increased supply from the US and from Africa that is hindering the signing of long term contracts as there are expectations of future price drops. These long term contracts are needed to fund expansions and new supply. However, if this persists it could in fact lead to higher prices long term if less new projects can get funded."
You have just summed up the boom and bust nature of the resources industry perfectly.
Consumer's aren't going to buy gas at a 50% premium today out of some altruistic notion of saving others from paying higher prices tomorrow. If one distributor will buy and on sell gas off the spot market at $5 MBtu right now, and the other $14 MBtu via long term contracts, who are you going to buy it off?
When the business case rises, resources development and CAPEX follows. When the cost to develop the resource is higher than the market is willing to pay for it, CAPEX disappears. The latter is our current state and which is why we have a CAPEX cliff.
Again I have never said the economy would crash, I've only said the prospects for future LNG expansion aren't as peachy as some expect.
The article is already dated as prices have risen dramatically since then. The Japanese tsunami was not part of the Gorgon price planning.
You posted a negative article here is a really positive one.
It may no be as completely peachy but oncoming LNG gas exports is certainly a healthy positive and like the fiscal cliff I doubt the doomers will get their predicted dramas from the "so called" CAPEX cliff.
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.
It may no be as completely peachy but oncoming LNG gas exports is certainly a healthy positive and like the fiscal cliff I doubt the doomers will get their predicted dramas from the "so called" CAPEX cliff.
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