Given that Australia has one of the highest household debt levels in the world, it could be the “first domino to fall” in the now often rumoured event of a global financial crisis. Our economy is looking “increasingly similar to Ireland's” prior to the 20007 housing collapse.

This warning comes from John Adams, Digital Finance Analytics, who has been predicting an “economic Armageddon” for the country because of overseas financial crisis due to property, household debt and net foreign debt bubbles. But as house prices fall faster, he now predicts that Australia will be the first to fall, for the first time in its history.

Australia is compared with the well known Irish economic plunge of 2007 because at the time, the Irish household debt to GDP was 100%; that of Australia last September was 120.5%. The Reserve Bank now puts “debt to disposable income at 188.6%, slightly below Ireland's 200%, but above the U.S 116.3%. Two thirds of our debt is invested in real estate! 60% of all lending is for housing, prices of which are going south!

Then there's mention of “second order falls” in prices as investors rush to sell. Not to mention flat incomes, large mortgages and rising costs.

We are also warned that the next recession is likely to be “structural, long and deep”.

There is dissenting opinion from an AMP economist but, given the recent findings by a Royal Commission into banks where the AMP showed up in a poor light …...

(Source: News.com)

I'm trying to work out what an ecomic is.

Is it:

A batman/superman/casper the friendly ghost etc comic that is only available online

or

a comedian who only tells jokes on twitter

I doubt that anyone who feels it's alright to make such a stupid, unhelpful comment would be able to "work out" anything.

We may be on a trajectory to recession, but that's something that can probably be reversed by cutting interest rates. And even if that's insufficient, we can ALWAYS get out of a recession very quickly (or avoid it completely) by increasing the government deficit. Australia has unlimited credit in Australian dollars, and no generation will ever be under any obligation to eliminate Australia's debt.

mhaze,
I think you're reading it wrong – 'tis an environmentally friendly microphone!

They'll probably bring in more students- I mean immigrants to temporarily buoy the market. Housing owners appear to be addicted to growth- same as the developers. What a wicked web we weave. ;)

one thing for sure and that is Shorten and the Greens will drive power prices up much higher than the ridiculous levels they are at now. We should be a nation that rewards hard work instead the 'elites' and social engineers will continue to line their pockets while virtue signalling to everyone else. More money will be wasted on schools by Labour while the grades continue to fall. Labour will again fail to achieve a budget surplus giving 1001 reasons why it is right to drive the country in more debt. Unfortunately we have a very dumbed down electorate. With the education system continue to brainwash kids it can only get worse.

Aidan, you clearly have no time for battlers who try to build up often meagre savings via interest. You are OK with the idea of even less income for them than the already ridiculously low interest rate we now have provides. Lowering interest rates is a really lazy tool used by incompetent managers and regulators. And, you still insist that big government debt is the solution to crises - fix the problem by increasing what brought about the problem in the first place.

Still, you have an opinion, which is preferable to some smartarse preferring to sneer at a typo to avoid having an opinion.

But...but ttbn, I do have an opinion.

It is my opinion that you don't have a sense of humour...at least when you're the butt of the joke.

Aidan,

I came across this the other day in regards to your silly notion that we can borrow ad infinitum....
http://www.igmchicago.org/surveys/modern-monetary-theory

42 eminent economists (ecomicist?) and not even one agrees with your daft notion. Indeed not even one is neutral on your daft notion. The only issue is how vehemently they disagree with your daft notion.

My favourite comment was "If this were true, each such country could finance the purchase of all of the world's output, which is obviously impossible."

ttbn,
From a moral perspective, reliance on interest is a bad thing. As a Christian I've read what the Bible says about usury. From a more practical standpoint, it keeps the poor in thrall to the already rich (or the banks, which have proved themselves to be just as bad). And from an economic productivity perspective, it's better for people to invest in improving their own skills than to accumulate money. Having lower interest rates is even better for business, because it reduce finance costs and enables long term investments to be profitable.

I also think it's a bad thing for people's standard of living to be so dependent on how much money they've already accumulated - it would be better for people to have a high standard of living throughout their lives. We do of course have to consider the impact on retirees, but they're well compensated with pensions, so I don't see it as a big problem.

However, supposing hypothetically that we want to return to the era of higher interest rates, the way to achieve them without sending the country into recession would be to greatly increase government deficit spending and keep it high, as it was in much of the 20th century. There's no technical reason why the government can't run continuous deficits over the whole economic cycle (though it's a policy I oppose because it would require high interest rates in order to control inflation).

Our economy depends on spending, whether public or private. The more productivity rises, the more spending is required to keep people employed. Spending requires borrowing; increasing spending requires increasing private borrowing (which can be induced by cutting interest rates) or increasing the amount the government borrows.

I do have a sense of humour, mhaze; you are just not funny. Your attempt at it - a thinly disguised intent to make me the “butt of a joke” - makes the 'Long March’ in China look like an hour with Michael MacIntyre. This is the third time you have shown your contempt for me.

Aidan,

So, you keep your money under the bed? Or are you still working and living week to week? I cannot believe that anyone who claims the knowledge that you claim doesn't have his money working for him. Whether it's in a bank, or tied up in superannuation if he is retired.

How does interest keep the poor “in thrall to the rich”?
How does improving skills (good in itself) instead accumulating money help the economy? Why can't both happen?
What good are “reduced expenses” to business via lower interest rates if people can't accumulate and save money to purchase from those businesses?
How do people have a “high standard of living throughout their lives” if they haven't the money to fund it?
Should pensioners not be allowed to save what they can from their pensions and receive interest for occasional treats and luxuries?
Why have you not learned that greater spending by big government has never worked, and is anathema to free enterprise? History is strewn with failures of big government spending.
Your final paragraph is a real doozy. The correct formula is SAVING and spending less than you have saved.

You are a hard man to fathom, Aidan. I don't mean to rude but perhaps your ideas just prove that you have a much better sense of humour than mhaze has.

mhaze,
What exactly do you think my "daft notion" is?
If you look at the wording of the questions that were asked, you'll see they were strawmen. The first question is too vaguely qualified and contains a non sequiter which seems designed to provoke a negative response.

If Question A were "Countries that borrow EXCLUSIVELY in their own FLOATING currency should not worry about government DEBTS because they can always create money to finance their debt" then you'd get a lot more agreement. Not unanimous, as false assumptions are rife amongst economists, but you'd have got rid of three logical flaws. Indeed there's a minor fourth flaw you could get rid of by stipulating that the country have an effective taxation system. It sounds obvious, but Weimar lacked one and consequently suffered hyperinflation until one was implemented.

Deficits always have consequences in the real economy. At times like this, the consequence can be keeping us out of recession. But when the economy's booming, inflation is a more likely outcome - though that can be counteracted by raising interest rates to discourage private spending.

Question B is quite obviously wrong. Economies don't have infinite capacity, and at some stage the government will be constrained by a lack of real resources. What we can truthfully say, though, is: Countries that borrow EXCLUSIVELY in their own FLOATING currency can CREATE AS MANY JOBS as they want by creating (and spending) money.

Strawmen prove nothing. They certainly don't represent my position, nor even the Modern Monetary Theory they purported to be based on.

__________________________________________________________________________________

ttbn, you misunderstand what I was saying. I'm not against people saving money, but I don't think we should set monetary policy to encourage them to do so.

And I stand by my final paragraph: it's spending, not saving, that the economy depends on. Employing people requires money to be spent, not saved.

I'll post a more detailed response later.

Nothing to worry about there, little old Aussie isn't going to be hit by the Irish Ecomic (slang term for a economically crazed Irishman) until the year 20007, that not for another 17988 years. I hope to be retired by then, and living off the non existent Aged Pension.

Thanks ttbn, and you have the hide to tell others to read before posting.

So Aidan, a plethora of economists utterly debunk your daft notions and you want to play semantics. Its not as if these people didn't have the chance to say that a floating currency changes the equation if that were indeed the case, as you assert.

Perhaps that's because it makes no difference, or at least little difference. The point is that, as more and more money is printed, the currency has to depreciate. Now it may be that that happens more 'gracefully' under a floating currency but it can also happen under a fixed currency as well. So your claiming that a floating currency alters the equation is a distinction without a difference.

I suspect the floating currency assertions exist because all the examples so far where merrily printing money has ended badly has occurred in nations with fixed currencies. But in those examples the currency was still depreciated. Floating or not, the problem was the irresponsible printing of money not the fact that the depreciation was not market-driven.

In the end this whole notion is about people unwilling to accept that they can't have it all. Its about people, like some of the current Democrat presidential contenders, promising that which can't be paid for while asserting (hoping?) that it'll be paid for by someone else sometime else.

"I do have a sense of humour, mhaze"

Now THAT's funny.

Aidan,

I don't believe that I misunderstood what you said. What I do understand is that you cannot answer my questions. Questioning is always a problem for ideologues and slogan announcers. Too many people just latch on to something an 'expert' they admire has said or written, and repeat it without examination of the information.

No, ttbn, it's not that I can't answer your questions - it's simply that other things (like watching the footy) took priority.

No, I don't keep my money under the bed. I use http://www.lll.org.au

>How does interest keep the poor “in thrall to the rich”?
The more the debts have to pay their creditors, the more power the creditors have over them.

>How does improving skills (good in itself) instead accumulating money help the economy? Why can't both happen?
To some extent both do happen, but it's the former we should be encouraging. Many people still imagine they can get rich through financial investments, but few do.

Accumulating money effectively reduces the amount of it in circulation, which can be good for reducing inflation, or even for increasing the size of the deficit the government can run before inflation becomes a problem. However under the current economic circumstances and policy, accumulating money has no good effects on the rest of the economy.

>What good are “reduced expenses” to business via lower interest rates if people
>can't accumulate and save money to purchase from those businesses?
Firstly, people would still be able to accumulate and save money even when interest rates are at zero. The problem of depressed demand is indicative of too little money in the economy, and encouraging people to accumulate more makes the problem worse.

Secondly, people can buy things on credit.

Low interest rates don't cause economic downturns (though they're often a reaction to economic downturns). But high interest rates have caused many economic downturns, including the Keating recession.

(tbc)

ttbn (continued)
>How do people have a “high standard of living throughout their lives” if they haven't the money to fund it?
The most obvious way is by borrowing money, which is one of the main reasons why so many people take out huge home loans.

A better way is by the government redistributing wealth, both directly and indirectly.

>Should pensioners not be allowed to save what they can from their
>pensions and receive interest for occasional treats and luxuries?
Of course that shouldn't be disallowed. 'Tis their money – they should be able to do what they like with it.

>Why have you not learned that greater spending by big government
>has never worked, and is anathema to free enterprise?
Why have you not learned that the above belief, though widely held, isn't actually true?

>History is strewn with failures of big government spending.
And we must learn from those failures to ensure the spending is done efficiently.

>Your final paragraph is a real doozy. The correct formula is SAVING and spending less than you have saved.
Correct formula for what, exactly? If everyone tries to do that at once, it's a formula for economic depression!

mhaze,
What you regard as "semantics" are actually the difference between the truth and what only an idiot would believe.

Are you really so empty headed that, even after I've pointed out the difference between what I understand of macroeconomics and those strawman claims that I concur are false, you still regard them as the same?

If you'd properly read what I'd written, you'd know that a floating currency is not the only difference. [Hint: look at the CAPITALS]

You should also have noticed that the economists questioned were not asked to correct the claim to make it true. Therefore it isn't surprising none have done so. Indeed many haven't commented at all. Most who did have raised valid objections, though a few have raised invalid objections based on their own false assumptions.

Many of their comments relate to the danger of hyperinflation. But that's the result of keeping the currency's official value above market value and then losing the ability to do so. If a country with a floating currency prints too much money, it instead results in competitive devaluation, so the country can export its way out of trouble. What you regard as a "distinction without a difference" is actually like the difference between a normal low pressure cell and a tropical cyclone!

Hyperinflation is almost impossible, and extremely easy to avoid, with a floating currency. It is possible when the country sells the money it prints in an attempt to fund foreign currency repayments (hence the requirement for the country to borrow EXCLUSIVELY in its own currency) or when (like Weimar) it hasn't implemented an effective taxation system, or when (like the Confederate States of America) the country's blockaded and its future's under threat.

Your claim "...as more and more money is printed, the currency has to depreciate" assumes constant production. In reality, production is likely to be rising because of technological improvement. Increasing the money supply is likely to result in higher production, so the currency may not have to depreciate and could even appreciate.

Why can't you comprehend that increased production makes the unaffordable affordable?

Aidan,

What's the difference between a floating currency market-driven 'competitive depreciation' and a government mandated 'competitive depreciation'?

mhaze,
The market driven devaluation happens in real time, so is likely to be smaller and therefore have less of an inflationary impact. Also a government managed devaluation is likely to be preceded by speculators making huge amounts of money at the government's expense,

Aidan,

Sorry, but you are not making any sense. I've been managing money for a long time, but I have never heard anyone talking the way you do. Stick to the footy mate.

ttbn,
I apologise for not having explained it sufficiently clearly.

What in particular doesn't make sense to you?
Do you understand why employment depends on money being spent?

I am not criticising the way you have managed money. But do you understand that maximizing the nation's wealth is very different from maximising an investor's wealth?

No Aidan, the question was what's the difference between the two in terms of achieving this 'competitive depreciation' that you think will allow us to borrow willy-nilly. Sure a market-driven depreciation will happen in many small bites as opposed to a government-drive one big bite. But they generally will end up at the same place.

Sure speculators will make money out of the government devaluation, but they also make money out of market-driven devaluation.

So again, if a 'competitive devaluation' is the mechanism to allow unlimited borrowing, why can't that be a government driven devaluation?

mhaze,
The mechanism to allow unlimited borrowing is the combination of the government creating its own currency and the market deciding how much that currency is worth. Competitive devaluation is NOT the mechanism to allow unlimited borrowing; it's what you get if the borrowing doesn't result in increased production. Effectively it's the penalty for failure.

A government driven devaluation would not end up in the same place at all. It would be far more inflationary, and the inevitable delay in responding would disadvantage exporters.

With a market driven devaluation, speculators would make money at each other's expense, not the government's expense.

Here's the way I see it Aidan.

People like you want to be able to demand that government fund any and all of their loony notions and don't want to have to explain where the money for said loony notions will come from.

So they make up this economically illiterate idea that government can just merrily print money 'til the cows come home. Problem solved...unless of course you live in the real world.

To overcome the problem that this just-print-money idea has failed every time its tried, they say that all those failures were in countries without floating exchange rates and then pretend that matters. It doesn't. It may delay the inevitable financial collapse but that's all. Then again, it may accelerate it. Let's hope we never find out.

That few if any economists of any repute buy this rubbish is treated as immaterial to these people. They just want what they want and evidence that they can't have it is not going to be considered

mhaze,
Wrong on all counts!

What exactly are those "loony notions" that you think I support?
Do they include NDIS and Gonski? Or long term infrastructure investments?

The size of the deficit (or surplus) matters, and FWIW I'm in favour of running fairly tight fiscal policy so that interest rates and inflation can both be kept low throughout the economic cycle. But right now it's TOO tight - businesses are being held back by a lack of demand, and still the economically illiterate government want to run a surplus for its own sake, even though that's likely to result in lower production and a shortage of jobs.

I once believed that the government borrowing money from its own central bank (colloquially known as "printing money") could cause hyperinflation, but I now know for sure that it doesn't, as it's functionally equivalent to the normal bond issuance process. And although hyperinflation episodes have always involved that or the literal printing of money, there has always been another cause - either they're desperately trying to fund foreign currency payment obligations by selling their money as soon as they print it, or they've been holding their currency's value above its market value and they lose the ability to do so.

Back then I also believed that government debt was something that governments were obligated to pay off in the future. I now know that the debt doesn't matter; although individual bonds must be paid off, there's no reason why government debt can't keep rising for ever. No generation will ever be under any obligation to eliminate the government's debt. There will be times when it is paid down (and may even be eliminated) though – as I said before, the size of the deficit/surplus matters. But the size of the debt (if indeed we have one) should not affect the size of the deficit/surplus the government runs.

What will it take to convince you that this nation will aways be creditworthy, and that the government should focus on long term productivity improvements rather than short term financial goals?

There is an elephant in the room.
The world economy is lubricated with oil.
The Wall St investors have at last become aware of the Ponzi scheme
known as tight oil (shale).
They are not making a profit and only survive by selling drilling
rights to the next sucker.
It has to come unstuck sometime and it will put the US into the world
oil market in a big way. Such a big increase in buying and the
resultant prices could trip a recession off very quickly.
Perhaps the Wall St financiers are worried about that.