Despite the disingenuous/dishonest use of units of measure in the graphs under discussion, no one has disputed that both the US and Australian curves have turned down, in similar timeframes, and neither downward trend has found a bottom.
Consumer debt deleveraging remains a force in current Australian economic events, albeit a (fortunately) more gentle one than across the pond.
No. I am certainly not disputing that. Personally I think it is a good thing and I hope it continues for a couple more years. Leverage raises risks and makes people much more vulnerable to shocks. But I still think it could go either way from here.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
PS: I'm not calling a boom or anything, but there was an article in the paper this morning about a house in Sydney (north shore) that sold as auction yesterday for nearly $900k over it's expected sale price ! Ie $2.2M when about $1.3M was being sought Probably an anomaly at this stage I think, but strangely reminiscent of the sort of things that used to happen regularly when the market has been red hot in the past.
Thanks for that Syd.
As for that property in Chatswood, I saw that and all I can say is WOW !!!
I've owned properties just like that in that area, sadly I have never had a similar result on auction day. I imagine there was a very happy vendor on Saturday night. I wonder if the purchaser may have suffered a little "buyer's remorse" on Sunday ?
Funny thing about that graph. The left hand scale is Australian private debt to GDP and it peaks at just over 155% of GDP. The right-hand scale is the USA private debt to GDP ratio and it peaks at just over 300% of GDP.
Obvously you are too good to shoot yourself in the foot and only go for headshots.
this is just reaction I expected by posting this chart.
American mortgage debt peaked at 85% of GDP (just over 25% of all debt). That is because private debt includes large portion of "good debt" (business debt) that drives economy up (credit used for business expansion, new R&D and business investments).
On the other hand our mortgage debt peaked at almost 90% of GDP or almost 60% of all private debt. In other words we invested almost nothing in productive things (business expansion, new R&D and investments) we rather wasted everything into unproductive mortar and brick.
this means we put everything in one unproductive basket and now there will be nothing stopping us form free-fall. Actually in two (other being mining that already reached the peak and will quickly burst).
Obviously you didn't have any idea how our debt looks ugly, compared to other countries - so thanks for all this attention after my first post.
Looks like shooting in the foot was just mirage that showed clearly what is in front of us - a debt deflating economic depression with collapsing property market leading the way down
this is just reaction I expected by posting this chart.
American mortgage debt peaked at 85% of GDP (just over 25% of all debt). That is because private debt includes large portion of "good debt" (business debt) that drives economy up (credit used for business expansion, new R&D and business investments).
On the other hand our mortgage debt peaked at almost 90% of GDP or almost 60% of all private debt. In other words we invested almost nothing in productive things (business expansion, new R&D and investments) we rather wasted everything into unproductive mortar and brick.
this means we put everything in one unproductive basket and now there will be nothing stopping us form free-fall. Actually in two (other being mining that already reached the peak and will quickly burst).
Obviously you didn't have any idea how our debt looks ugly, compared to other countries - so thanks for all this attention after my first post.
Looks like shooting in the foot was just mirage that showed clearly what is in front of us - a debt deflating economic depression with collapsing property market leading the way down
Hmm. If I made such a huge factual blunder, I would probably admit it and apologise for unintentionally posting rubbish.
Your style seems to be to accuse the person who caught you out of being ignorant and then go on to talk about something else.
For the record, if you read the followup posts you'll see that I actually accept Keens twin points that: a) The size and rate of growth of private debt/gdp matters; and b) Once it gets big enough, in the absence of compensatory mechanisms, you can create demand collapse simply by stabilizing debt, let alone growing it further.
I only objected to Keen's deceptive way of presenting the data, and actually I still do.
As to the tangent you took to avoid admitting your blunder, I see that you read the axes on the graph before you tried to explain its meaning. Well done.
To your comment about building houses being an unproductive activity, I have partial sympathy for that point of view. I even posted to that effect in another thread today. Living in houses is consumption. Spending on the house that you live in is consumption. Spending money on a house to rent out is making an investment to produce something for local consumption - in much the same way as building a car factory so you can sell cars in Australia is. Spending money to build houses for which there is no demand for is waste.
So the comparison between the US and Australia in terms of mortgage debt vs. Other private debt is interesting. It may be indicative of something deep, or it might just be that manufacturing industry tends to rely on a lot of debt, whereas mining relies on equity or does not raise money in Australia. After all, BHP-Billiton is only half-Australian and the rest of the big miners are not Australian at all. It would be interesting to find some hard numbers on that. I do note that consumer debt has stayed pretty low at 10% of Australia's total private debt all the way through, and Business debt seems to mostly around the 40%.
Your contention that there is some knid of inevitability of a crash in the numbers is pretty fanciful. Fact is, private debt levels are stable to slightly falling. Even Steve Keen only saw danger in the growth rate and the risk of rapid deleveraging it entailed. Neither is happening right now. It does suggest that there is no boom in the offing, though.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Well, there are still people who claim that Australia's property boom is NOT credit driven, so why it has gone into decline is a complete mystery.
As for the chart in question, I first saw it in Keen's original blog post and I can't say I got the impression that it was mean't as a comparison of total debt between OZ and US, but I can see how some people who are not very good at reading charts could see it that way.
As for tipping points for the end of credit expansion cycles (booms), it is my contention that there are only two things that matter. 1) Saturation: How much debt can the populace take on without it overwhelming them or knocking them into insolvency/bankruptcy at the slightest shock. 2) Wages: Are wages keeping up with the growth in asset prices. If yes, then the boom can go on until the average wage is 7 billion dollars per year and a 3 bedder in Enmore costs 63 billion dollars (there has never been a better time to buy! Only 63 billion dollars!). If you think I am being facetious, look no further than Indonesia where this has already happened.
And even (1) above can be entirely mitigated by (2). Price booms can go on forever as long as you don't need foreign investment (because inflation (FX) will always eat away any returns and more in the investors currency).
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To your comment about building houses being an unproductive activity, I have partial sympathy for that point of view.
Housing is a cost to the economy. It is an unavoidable expense. In the suburb I live in, when a house is sold, the new owner immediately bulldozes it to build a shiny new amortizing liability, er ... superbly styled modern mansion. And that too will continue to waste and depreciate until the next boom where it will be torn down again.
If a business were to maximise it's costs, that would be considered the height of stupidity, and in a free market it's competitors would drive them out of business. But for some reason in Real Estate, it is considered a virtue to maximise the cost of providing shelter to the population.
Is the reason stupidity for a business is a virtue for a nation because there is no free market in 'shelter provision'? Can the longevity of this particular stupidity be attributed to the fact that there are no competitors to run 'shelter providers', whose business model is predicated on some variation of a ponzi scheme, out of business?
Quote:
Your contention that there is some knid of inevitability of a crash in the numbers is pretty fanciful. Fact is, private debt levels are stable to slightly falling. Even Steve Keen only saw danger in the growth rate and the risk of rapid deleveraging it entailed. Neither is happening right now.
AN interest rate cut next Tuesday could fuel a flurry of activity in the housing market before the end of the financial year, when a series of first time buyer concessions expire.
At its May 1 meeting the Reserve Bank of Australia (RBA) made the biggest single reduction in the cash rate since the depths of the global financial crisis, lopping 50 basis points off to 3.75 per cent.
Economists say speculation ahead of that rate reduction may have assisted a 6.9 per cent jump in April new home sales data released on Tuesday.
Despite this pick-up, the housing industry still believes home building is heading to a recessionary level in 2012.
"That's an unfortunate fact which everybody needs to face and which requires further interest rate cuts and immediate government action," Housing Industry Association chief economist Harley Dale releasing the latest HIA-Jeld Wen home sale figures.
He said governments needed to collectively act to revitalise new home building through reducing the sectors excessive tax burden and through an immediate injection of investment and funding.
Home building commencements were over 13 per cent lower than a year earlier as of December, while building approvals were down 15 per cent in the year to March.
I believe the RBA has picked inflation : 2% to 3% range.
The RBA always picks inflation, but 2-3% is not enough to prevent debt deflation. At the current stage of debt saturation you would need inflation closer to 7-10% minimum. And there is a law of diminishing returns when inflating the currency without a corresponding increase in productivity or economic growth, such that inflation begins to inflate. Taking Argentina and other basket case/banana economies as a model the progression tends to be something like 7-10, 10-15,15-30,30-70,70-300 and after that you either get hyperinflation or war or revolution.
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