By: lasty49
17/11/2009
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Steve Keen doesn't need another person to support his views.
What he needs is a professional mountaineer to guide him on his trek up Mt. Kozzie |
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By: ang101000
16/11/2009
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| The Missouri academic has visited Oz at the invitation (as a guest speaker) of Steve Keen. They are in the same school of economics. It is not that important, but it helps to put the article in perspective. I think, it should be disclosed. |
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By: ralphemorgan
16/11/2009
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| The Missouri academic asks "How else to explain the cutback in new building?" Simple -- in a recession/GFC banks restrict lending to risky businesses (such as property developers), and developers tend to sell off existing stock of completed dwellings to meet demand. |
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By: jaymarcel
16/11/2009
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| Sorry will read now, I was going on your statement that this is the final stage of deflation. |
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By: mentawaisurf
16/11/2009
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| If you read the article Jay you'll see we haven't even started the final phase of our housing debt deleveraging. |
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By: jaymarcel
16/11/2009
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| Menta when you say final phase do you mean the end of deflation before another boom. |
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By: mentawaisurf
16/11/2009
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Debt deflation will drive Australian house prices down. This is the inevitable final phase of a debt-leveraged bubble.
http://www.theage.com.au/business/fall-in-housing- starts-to-impact-prices-20091110-i7qk.html |
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By: ang101000
14/11/2009
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Billy,
I don't really see how name calling (commie) and ideological demarcation are relevant to the debate '(That was an interesting version of economic history described through a leftist prism.)'
I am me and I'm not a believer in any ideology or dogma (be it religious, cultural, political or economic). As such, to be able to answer all your critical points about risk & return, share price, speculation, regulatory environment, Steve Keen, etc I have uploaded some files (mostly academic papers, although not guaranteed to satisfy your free market capitalist ideological view). All in PDF, but the content is well beyond the scope of this site.
Pick and chose what you like to read and discard the rest.
http://ifile.it/fv3cq6p
http://ifile.it/ejzdltr
http://ifile.it/ejzdltr
http://ifile.it/bnaqoz1
http://ifile.it/wxyt6nh
http://ifile.it/o9eqf1i
http://ifile.it/og6u321
http://ifile.it/x517phd
http://ifile.it/91tcpra |
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By: billy.holliday@rocketmail.com
13/11/2009
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My point is that it is way to two dimensional to say that property is categorically unproductive ( I think it is weed smoking time to say that shares or investing in businesses is unproductive), but both at certain times may be used in an in productive speculative way, but then you are always free to disagree and tak eth other side of the trade.
At the end of the day, none of this is reason enough to throw it all out although we need to learn from it and fix some weaknesses. Creative destruction of capital where entrepreneurs are deservedly rewarded for taking risks that work out (and lose money if they don't), is the necessary engine of our system, and the one the "must control everything" commie just doesn't understand.
As Keen says, everything is not in equilibrium and is constantly oscillating and adjusting to changes elsewhere. The system will adjust (some say it already has) and will need a bit of regulatory help this time, but if you still think like Kowalski and we are all gonna die, sell all you risk capital assets (although if everyone thought the "right" Ang way, who would you sell them to????) and get short.
Now I need a coffee to calm down:-)
Billy |
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By: billy.holliday@rocketmail.com
13/11/2009
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Hi Ang,just got back....I know that you have quit the blog, but I also know that you will read this, but let me address it generally to the rest.
That was an interesting version of economic history described through a leftist prism. I have met Krugman and he is unashamedly liberal, which is fine but remember why it is always hard to find a one armed economist! And Australia has always had a CA deficit, and it changes all the time based on our export levels & prices and capital flows out for equipment, which is a good thing. But, saying we would all be buggered if it weren't for China is like saying that I would have won the Melbourne Cup if the other 23 horses didn't run as fast as they did. Maybe, but maybe not: changing one variable (take China out) and keeping all else constant works in Newtonian Mechanics (we are hard wired to think like that), but not complex multivariate systems. This is classic Minsky & Keen, so you should agree with the approach.
With respect, you haven't really made any points in relation to why shares are unproductive. You have bemoaned the price of houses (but hey, its like complaining that BHP is too expensive coz all those pesky long term investors all think its worth it). My point was that at the end of the Keen/Ang linear description of events, you always end up with "..and all that new debt was spent on unproductive assets". My non-command economy non-commie view is that everyone should be able to decide what they do with their money when they are bearing the risk. Admittedly, in the GFC's case, much of that risk was socialised, but it was the lack of regulation of the banks to blame, not the fault of the guy in Blacktown stretching to buy a house and paying too much in Ang's view.
(cont'd) |
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By: firefly_au
13/11/2009
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Hi Ang :)
To quote one of the characters from just about one of my favourite movies of all time - "The Quiet Man" staring John Wayne and Moreen Ohara and a little Irish fellow called Michealine O-Flynn says " Your a rich propertied women then - I wouldn't mind marrying you myself" he was acting as John Waynes matchmaker at the time. Pardon my Pun he he :)
Seriously though you are following the best plan in my view - well done smart one! Not that you need my approval... :)
By the way I am up to Chapter 4 on the book you recommended to me"why markets crash" and it is very interesting! Thanks for that :)
BYE :) |
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By: ang101000
12/11/2009
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Billy,
sorry, I did not address your comment;
'Ang, you need to get a bit more excitment into your life !!'
Perhaps, you are right. I can see my wrong way of living without 'more excitment'. For that reason, I promise to return only at the of December.
Bye,
Ang |
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By: jaymarcel
12/11/2009
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Hi Enoughwealth,
You're right in what you say but this crisis has proved that it is not the best way to run a business.
I think this crisis has proved its more important for a business to run debt free than even an individual/household. |
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By: ang101000
12/11/2009
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Fire,
I am like Buffet, I live in my smallest apartment, it is the cheapest too and leave my house(s) for people who consider the house they live in as 'a productive asset'.
As you say; it is productive for the govt tax office, that is why I chose to reside in the lowest (maintenance) cost place that I posses. |
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By: ang101000
12/11/2009
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Lasty,
just stick to our (Oz) current account deficit, that was more the economic point of this piece. Perhaps, I did not make it very clear. |
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By: ang101000
12/11/2009
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Hi Enoughwealth,
thanks for reading that really long posting. I wrote it to Billy.
I don't speculate in real estate, but have written (and posted a lot about it).
My only comment remains the same; I consider it to be a social issue and prefer not to add anything else given the amount of research material I uploaded and posted links to on this site. |
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By: lasty49
12/11/2009
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ang,
Its very difficult to compare property with say New York to Melbourne or Sydney.
Our blocks of land (qtr acre) are generous by comparison. |
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By: firefly_au
12/11/2009
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Hi Ang :)
In regard to this by you earlier - "I consider housing (ones own home) a non productive asset. I consider housing a social issue " Actually Ang our homes and land are productive wealth assets but not for us IMO!
It is the local governments that make all the income directly from them based on the perceived improved value of the land it is on. In the form of increased "rates and taxes"
BYE :) |
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By: enoughwealth
12/11/2009
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ang - mortgage interest rates are much lower in the 90s/00s compared to the 70s/80s. Hence house price:income ration isn't as critical as repayment:income ratio. As the 'inflation dragon' came under control, people were able (and willing) to buy bigger houses using more debt, as the repayment cost was sustainable. Hence my view that the current 'affordability crisis' is a bit of a furphy - having to save hard for 5+ years to get a 10%-20% deposit together, and then taking out a 25 or 30 year loan in order to afford a 'modest' first home is NORMAL. I think it's the attitude/expectation of current FHO-aspirants that is different.
jay - companies do not use their profits to repay debt as it is sub-optimal to run a reasonably profitable business 'debt free'. Any moderately sucessful business will get a ROI on invested capital that is considerably higher than the interest being charged on their borrowings - ie. why use profits to repay debt that is costing you 12% interest when if you invested the profits to expand your business you would get, say, 20%+ ROI on the additional capital investment? And if your company is doing so badly that your ROI is less than 12% (and doesn't have definite prospects of improving profitability in the short term) then you should be winding up the company, not aiming to run it 'debt free'! The usual debt:equity ratio aimed for by conservatively run companies is around 1:1 - problems arise when companies gear up too much thinking that they can always generate ROI that is higher than the borrowing costs. It's either a road to massive growth and revenue (eg. microsoft in the early days) or total disaster (eg. Enron) |
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By: ang101000
12/11/2009
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last part
It used to take three to four years of a typical household income to buy a Melbourne house. It now takes seven. The US website Demographia lists Melbourne, Sydney, Adelaide, Bundaberg, and Queensland's Gold Coast as among the world's 12 least affordable markets. It identifies Melbourne as being less affordable than New York.
This makes no obvious sense from an international point of view. It has also put housing beyond the reach of Australians who could have once afforded it, perhaps unsustainably. But it has kept the a larger number of constituents happy. One of John Howard's parliamentary secretaries is reported to have once quipped, 'rising prices make for happy voters'.
That happiness fed into a feeling of wealth, and a feeling that (perhaps aided by dipping into housing equity) it was okay for Australians to spend more than they earned each year.
For the first time Australians households in aggregate were spending more than they earned each pay period. We began to literally live beyond our means as our mining boom was taking hold.
We could have done things differently.
As the globe enters its first co-ordinated recession in half a century, and as the providers of finance become more jittery than they've been in generations Australia finds itself absolutely dependent on the rest of the world to maintain its standard of living.
China's surge in economic growth - the one thing that bought Australia temporary immunity from attack by financial markets. But what if China stalls?
Marvin Goodfriend from Carnegie Mellon University describes China's boom as 'a one-off in the history of the planet earth.'
If China's boom stalls Australia's abundance of resources remains as irrelevant.
In its recent economic update Access Economics reminded clients that it it has long said that, 'if China's surge stumbles then Australia's trading balance will be buggered'. What would happen to the currency? Devaluation, same as USD. |
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By: ang101000
12/11/2009
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What we pay out over and above what we take in now amounts to roughly 6 per cent of our GDP. That's quite an achievement for a nation at the end of five years of an almost-unprecedented export boom. Our imports have climbed faster.
Much of the increased import spending has been on mining equipment and the like - a necessary counterpart to the resources boom.
But much of the rest has been on consumer goods: roughly 50 per cent more on consumer electrical imports such as plasma TVs, almost 70 per cent more on imported food - all within the space of five years.
The Howard government helped, announcing personal income tax cuts in each of 2003, 2004, 2005, 2006 and 2007. Tax breaks - either outright exemptions or concessions - soared from $50 billion to $73 billion. Government spending jumped by one third. At a time when employment generally climbed 15 per cent, the Commonwealth public service (excluding Defence) swelled 25 per cent.
Almost as the fast as each wave of mining-generated cash came in, the government pushed it out where it would be spent. In its dying days it formally adopted as a campaign slogan what by then had long been its unofficial guiding principle - go for growth.
The party that in opposition had hired a "debt truck" to drive around Melbourne streets bemoaning Labor's $200 billion foreign debt, left office with a foreign debt exceeding $600 billion. During its final year we were expanding that borrowing at the rate of $200 million per day.
Much of it was spent on the not-particularly-useful exercise of bidding up the price of Australian houses. After the government halved the headline rate of Capital Gains Tax at the turn of the century Australian house prices doubled. Investors who used to account for only 20 per cent of the loans to purchase housing took out 40 per cent as they swept owner-buyers aside and pushed up prices. continued... |
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By: ang101000
12/11/2009
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Here is why I am angry ( I had a coffee and calmed down, so I will not be rude to you);
'So, you think that "Capital Assets like shares = Speculative Investments = bad things and the cause of all this Steve Keen debt mayhem" -That is you putting worlds to my mouth.
Now, let me explain it simply;
You are aware of the current account deficit, are you? I see that as a risk. In the United States a problem which did have the potential to undo the economy was ignored or denied by everyone from the world's most important central banker down.
Investments that seemed too good to be true were investigated and found trouble-free right up to the day millionaire philanthropist and funds manager Bernie Madoff turned himself in.
Welcome to Australia in the first decade of the 21st century.
Welcome to where where we find ourselves at the end of The Howard years...
Back in 1997 when the Howard government was young, financial markets took a set against a a number of Asian countries including Indonesia. Its currency plunged 60 per cent. There was mass unemployment, rioting, regime change, austere medicine imposed by the International Monetary Fund which made things worse and the loss of 13 per cent of GDP.
And yet, as the winner of this year's Nobel Prize in economics Paul Krugman points out in the new edition of his book The Return of Depression Economics, Indonesia's current account deficit at the time was smaller than Australia's. Its standard of living was more sustainable than ours.
A country's current account deficit is the measure of the foreign dollars that it pays out to rest of the world each quarter over and above the foreign dollars that come in. It can only be sustained by ever-growing foreign borrowing.
Since the Asian economic crisis - the bullet that Australia missed - our current account deficit ratio has doubled. continued |
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By: jaymarcel
12/11/2009
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Billy, I disagree on your arguement, I actually think the sharemarket system is half the problem.
If you start up a company with your own cash or borrow from the bank then the only money that should be re-invested is profit to eventually run with no debt, we have all these companies now failing because they can't refinance in the current climate causing an unemployment situation. |
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By: ang101000
12/11/2009
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Billy,
I am happy with my risk profile and considerable investment, which includes shares and property. My first point was; all assets classes have lost considerable value (or have devalued) during GFC. My second point was; given that all assets have lost value ('toxic assets'), it is very hard to calculate or assign value/price to those financial assets, hence speculation.
Now, my main point of difference from your view is; I consider housing (ones own home) a non productive asset. I consider housing a social issue (yes, you could call me a commie). Funny that Glen Stevens is of the same view, perhaps he is a commie too.
I am angry, very angry, better stop now, before I write something to offend you. |
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By: billy.holliday@rocketmail.com
12/11/2009
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Ang
Now I think we're talking!!!
So, you think that "Capital Assets like shares = Speculative Investments = bad things and the cause of all this Steve Keen debt mayhem"
Given the standard of your posts to date, I cant believe that you think that everyone should keep their money in T Bills all the time instead of investing in those nasty nasty capital assets. Think through what you are saying....that would be the end of society. Soemone somewhere has to invest in those bad risky businesses ( aka shares). No one would have a job and there would be no saings from work available...
I think you guys just have extreme risk aversion and you are building a theory around it as if it should be the equilibrium.
Ang, you need to get a bit more excitment into your life !! |
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