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Property busts preceded by large run-up in household debt tend to be more severe; Australian household debt to disposable income quadrupled in 30 years
Topic Started: 10 May 2012, 09:16 PM (4,531 Views)
peter fraser
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b_b
11 May 2012, 12:38 PM
peter fraser
11 May 2012, 12:00 PM
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Just because the masses and politicians say "it is", does not make it true. For 20 years Japanese politicians have worried about their solvency. Hedge funds routinely short Japanese Bonds. And just as routinely, they lose money (and clients). Kyle Bass will be the next victim.
http://mikenormaneconomics.blogspot.com.au/2012/05/kyle-bassdumb-dumb-clueless-dumb-and.html
Thanks for the reply.

Countries simply can't just increase their supply of money ad infinitum. At some point the market loses confidence and the currency is debased.

How can we calculate that tipping point?

Inflation.

As I have mentioned, the constraint for Australia in not financial - its real resources.

Taxation reduces aggregarate demand from the private sector. This frees up real resources from the economy which allows the government to purchases these resources (labour etc) without pushing up prices, so as to meet its social and economic objectives.

Taxation is not required to meet interest payments.
Thats the answer from an MMT point of view, but our politicians and the general public don't share that view, so we have some actual constraints that have to be dealt with, whether they exist or not from your MMT point of view.

How does MMT handle the political arguments that won't be easily explained on "A current affair" or similar low quality populist program, and is the RBA on board either knowlingly or unknowingly?

I read the OP on Japan and the shorts taken by Kyle Bass. How do you think Chanos will fare in China?

I have some work to do. According to audas I have some lives to ruin, and that takes time.



Any expressed market opinion is my own and is not to be taken as financial advice
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b_b
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peter fraser
11 May 2012, 12:55 PM
b_b
11 May 2012, 12:38 PM
peter fraser
11 May 2012, 12:00 PM
Quote:
 
Just because the masses and politicians say "it is", does not make it true. For 20 years Japanese politicians have worried about their solvency. Hedge funds routinely short Japanese Bonds. And just as routinely, they lose money (and clients). Kyle Bass will be the next victim.
http://mikenormaneconomics.blogspot.com.au/2012/05/kyle-bassdumb-dumb-clueless-dumb-and.html
Thanks for the reply.

Countries simply can't just increase their supply of money ad infinitum. At some point the market loses confidence and the currency is debased.

How can we calculate that tipping point?

Inflation.

As I have mentioned, the constraint for Australia in not financial - its real resources.

Taxation reduces aggregarate demand from the private sector. This frees up real resources from the economy which allows the government to purchases these resources (labour etc) without pushing up prices, so as to meet its social and economic objectives.

Taxation is not required to meet interest payments.
Thats the answer from an MMT point of view, but our politicians and the general public don't share that view, so we have some actual constraints that have to be dealt with, whether they exist or not from your MMT point of view.

How does MMT handle the political arguments that won't be easily explained on "A current affair" or similar low quality populist program, and is the RBA on board either knowlingly or unknowingly?

I read the OP on Japan and the shorts taken by Kyle Bass. How do you think Chanos will fare in China?

I have some work to do. According to audas I have some lives to ruin, and that takes time.



MMT is not blind to the political process. I think I have said this many times before. For a country like Australia, in the future there will be no financial crisis - only a political crisis.

I'm not sure how MMT can be sold to the public. But I do know the very broad opinion of the wider public today is "why have a surplus?". I think the "public" is smarter than politicians beleive. Keynes had the same trouble during the depression where the liquidationists dominated the policy agenda - but logic and common seanse will always win through. Only time is the unknown.

Whenever I am in a Cab or talking to a shop owner, I can get them to accept the broads principals of MMT within a few minutes. So I am confident this line of thinking will be universally accepted. I think it wil be sooner than most people think.
(S – I) + (T - G) + (M - X) = 0
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Future
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b_b
11 May 2012, 01:11 PM
MMT is not blind to the political process. I think I have said this many times before. For a country like Australia, in the future there will be no financial crisis - only a political crisis.

I'm not sure how MMT can be sold to the public. But I do know the very broad opinion of the wider public today is "why have a surplus?". I think the "public" is smarter than politicians beleive. Keynes had the same trouble during the depression where the liquidationists dominated the policy agenda - but logic and common seanse will always win through. Only time is the unknown.

Whenever I am in a Cab or talking to a shop owner, I can get them to accept the broads principals of MMT within a few minutes. So I am confident this line of thinking will be universally accepted. I think it wil be sooner than most people think.
How does this theory help us Gen Y cats and how is it related to our property empire dreams?
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b_b
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Future
11 May 2012, 02:00 PM
How does this theory help us Gen Y cats and how is it related to our property empire dreams?
Catweasle use to ask very similar questions.
(S – I) + (T - G) + (M - X) = 0
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peter fraser
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b_b
11 May 2012, 01:11 PM
MMT is not blind to the political process. I think I have said this many times before. For a country like Australia, in the future there will be no financial crisis - only a political crisis.

I'm not sure how MMT can be sold to the public. But I do know the very broad opinion of the wider public today is "why have a surplus?". I think the "public" is smarter than politicians beleive. Keynes had the same trouble during the depression where the liquidationists dominated the policy agenda - but logic and common seanse will always win through. Only time is the unknown.

Whenever I am in a Cab or talking to a shop owner, I can get them to accept the broads principals of MMT within a few minutes. So I am confident this line of thinking will be universally accepted. I think it wil be sooner than most people think.
Without meaning to be rude, but if you try to explain any complex theory to a cab driver who is thinking only of his next fare, you will find that he will quickly agree with anything that you say to get rid of you so that he can earn his next buck.

I would also suspect that someone who can tell a good dirty joke is more popular at BBQ's than any MMT theorist expounding his views to a half tanked group of friends.

So I have some doubts about the ready acceptance amongst the populace.

Nevertheless I find your views interesting, and I can't fault any so far, except perhaps that you give insufficient weight to a lack of understanding and natural suspicion for anything not understood by the voting public. The political obstacles may be massive, but irrelevant if the RBA and Treasury understand and set policy accordingly. Having known an ex-federal minister well some years ago, I can assure you that they rely heavily on their public service advisers in their decision making.

We could save a lot of money and trouble if we just let the public service get on with their job, and not be impeded by politicians.



Any expressed market opinion is my own and is not to be taken as financial advice
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Future
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b_b
11 May 2012, 02:14 PM
Catweasle use to ask very similar questions.
Introduce the guy. This is a property forum and I'm sure you guys have something to offer. But I want to know how I can get a benefit from it.
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b_b
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peter fraser
11 May 2012, 02:32 PM
b_b
11 May 2012, 01:11 PM
MMT is not blind to the political process. I think I have said this many times before. For a country like Australia, in the future there will be no financial crisis - only a political crisis.

I'm not sure how MMT can be sold to the public. But I do know the very broad opinion of the wider public today is "why have a surplus?". I think the "public" is smarter than politicians beleive. Keynes had the same trouble during the depression where the liquidationists dominated the policy agenda - but logic and common seanse will always win through. Only time is the unknown.

Whenever I am in a Cab or talking to a shop owner, I can get them to accept the broads principals of MMT within a few minutes. So I am confident this line of thinking will be universally accepted. I think it wil be sooner than most people think.
Without meaning to be rude, but if you try to explain any complex theory to a cab driver who is thinking only of his next fare, you will find that he will quickly agree with anything that you say to get rid of you so that he can earn his next buck.


Fair Point.
Quote:
 
I would also suspect that someone who can tell a good dirty joke is more popular at BBQ's than any MMT theorist expounding his views to a half tanked group of friends.

Agree with that!
Quote:
 
So I have some doubts about the ready acceptance amongst the populace.

Fair enough
Quote:
 
Nevertheless I find your views interesting, and I can't fault any so far, except perhaps that you give insufficient weight to a lack of understanding and natural suspicion for anything not understood by the voting public. The political obstacles may be massive, but irrelevant if the RBA and Treasury understand and set policy accordingly. Having known an ex-federal minister well some years ago, I can assure you that they rely heavily on their public service advisers in their decision making.

The operations people at the RBA understands this very well. They are the ones who credit the Government accounts electronically. They are the ones who conduct Open Market Operations (OMO) every day to target their desired interest rate. People who join the RBA in the "front office" are oblivious to the realities of the system. They remain slaves to their newly acquired Economics degree - much to the detriment of Australia.

I do not know anyone in Treasury, but I suspect they understand it too since they NEVER have to wait for tax receipts or a Bond Auction before spending.
Quote:
 
We could save a lot of money and trouble if we just let the public service get on with their job, and not be impeded by politicians.

Agree.
(S – I) + (T - G) + (M - X) = 0
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miw
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b_b
11 May 2012, 09:29 AM
The graph from the Mckinsey is misleading.
That was partly my point.

The graph in the original article was misleading because it had a cherry-picked low starting point, and because it charted a long-term compounding trend on a linear scale. You are guaranteed to get a sharp uptick if you plot data that way. My university professors would have given me 0/10 for that graph because it is misleading.

The McKinsey chart is misleading in this context because it uses a slightly different data set, but mostly because it diddles the y axis. It also gets 0 out of 10 from me.

I do disagree with you about total debt (as opposed to household debt) not being important though.

You are half right about government debt being good for households. It is good for households while it is increasing, because it allows expansionary fiscal policy. Once it has been run up, however, it has the opposite effect. The government has to pay the interest on it, which means the government gets to spend less of the tax take on running the country. So you have to have more contractionary fiscal policy. In the end, high debt means you have to do one of three things:
1. Austerity
2. Raise productivity
3. Inflate your way out by printing money or devaluing the currency - only works if the debt is denominated in your own currency.

Of those, 1 and 3 are definitely bad for the householders (although 3 is good for people with debt at fixed rates)

2 is usually bad for households because it usually entails a drop in real incomes. The exception is if the rise in productivity is achieved through microeconomic reforms that increase inefficiency.

I agree with you that you don't ever have to repay all of the debt. You will get into trouble eventually if debt as a proportion of GDP keeps increasing.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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miw
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b_b
11 May 2012, 10:43 AM
We have been deleveraging because the Government has run a deficit. The Government seems intent on stopping this process.
Australia is deleveraging on both private and public debt, and has been doing so for 6 years.

If you look at the firat graph, you can see that households have deleveraged relatively slightly, and you can see that the total debt has deleveraged at a slighty faster rate.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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WestAussie
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b_b
11 May 2012, 02:14 PM
Catweasle use to ask very similar questions.
You noticed that too right? :-) Think the 'I'm leaving' just means. 'Crap, I was wrong. Time to about face with a new account.' lol
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