Comments on: Fiscal politics

By: Katz

Katz — Sat, 12 Jan 2008 01:50:50 +0000

If Swan keeps on trying to micromanage house loan interest rates by jaw-boning the banks, he’ll end up looking like a dill.

The alternative to commercial loans is no loans.

By: Mark

Mark — Sat, 12 Jan 2008 01:40:15 +0000

From The Australian today:

http://www.theaustralian.news.com.au/story/0,25197,23039395-5015025,00.html

By: Mark

Mark — Fri, 11 Jan 2008 04:34:16 +0000

Further Update: More from Gianna at Surfdom and Gary Sauer-Thompson at Public Opinion.

By: Andrew Reynolds

Andrew Reynolds — Thu, 10 Jan 2008 06:48:07 +0000

Note that I am not saying there will not be a recession, but if there is then the sub-prime issue is, if not only a straw, then at most a modestly-sized parcel on the camel’s back.

By: Andrew Reynolds

Andrew Reynolds — Thu, 10 Jan 2008 06:45:28 +0000

Katz,
You may be right on a whole of US basis – but houses and land cannot be transported. The housing affected is localised in certain areas, meaning that a year-long holiday is unlikely.
You are right that housing prices have dropped, but this was from really high levels. The bulk of the housing is just returning to values of 2006 or at worst 2005.
If you look at what happened to the markets in the early 1980s and now the difference shows that optimism about the extent of the problem is not localised to my office.

By: Katz

Katz — Thu, 10 Jan 2008 05:38:42 +0000

AR,

The subprime crisis was just the detonator for a series of much larger explosions that haven’t happened yet.

The US real estate market has declined further and quicker than at any time since the onset of the Great Depression.

There is now at least a year’s overhang of surplus housing stock. In other words, the entire construction industry can take a year’s holiday.

The day before yesterday in California more than 5,000 houses were auctioned at foreclosure auctions around the state. This was by far the biggest offering of its kind in California’s history. Virtually none of them sold.

US households have indebted themselves on the collateral of their homes to an unprecedented extent. Now they have negative equity in the properties and the banks, hungry for liquidity, are about to come knocking with a margin call.

Credit card debt and car loan delinquencies are rising rapidly.

This will be much worse than the S&L scandal.

However, there are many ways in which you may profit from your optimistic forecast. And there are plenty of pessimists out there for you to profit from. At the moment it’s a seller’s market for optimism.

By: Andrew Reynolds

Andrew Reynolds — Thu, 10 Jan 2008 04:39:52 +0000

Katz,
I think you are greatly over-stating the likelihood of the assets being “severely” written down as a result of the “sub-prime” problems. The total losses in the US sub-prime market (or even the total value of the sub-prime debt) are really small compared to the US economy. Even if all sub-prime loans in the US were completely irrecoverable today total losses would amount to around 1% of US GDP – far less than the S&L mess that took only a few years (and a lot of money) to work through. The real problem here is a temporary, informational, one – people do not know where those losses are going to end up. This is being solved as companies report. Much of these losses are in the hedge funds, so (at least theoretically) these losses will be to investors with over $500,000 to invest – i.e. the rich – who will lose in lending to the poor. From a “social equity” POV this may not be regarded as a bad thing.
The issue of whether this hiccup triggers a US recession (and thus further writedowns) that is largely due to rampant government spending on useless programs and the military, trade restrictions and other stupidity is a different one, and should be separated.
The blame for off-trend growth should always be sheeted home to where it belongs – and that is (IMHO) almost invariably a government.

By: Chris (a different one)

Chris (a different one) — Thu, 10 Jan 2008 04:17:35 +0000

Just in the Age today we have headlines of doom and gloom while Tim Colebatch states that interests rates may need to raise. In 1992, Australia had 25 unemployed for every job vacancy. Today this ratio is edging down towards 2.5 unemployed for every job offering — increasing pressure on wages and interest rates………

One reason why employers have problems in filling vacant jobs is that Australia invests very little in retraining its unemployed with new skills. Organisation for Economic Co-operation and Development figures show Australia is near the bottom of the rich world in spending on training for the unemployed.

So there you go. The previous Liberal government inaction may cause lots of headeches for the Labor government.

Don’t those unemployment stats suggest that we’re just short on people to do the work, rather than a shortage of people skilled to do the work? After all there is no qualification in those statistics about having people capable of doing the work.

By: Mark

Mark — Thu, 10 Jan 2008 02:14:06 +0000

By: Mark

Mark — Thu, 10 Jan 2008 01:33:50 +0000

Guido, I wouldn’t get too worried about it. I think Australians afford a fair amount of goodwill to new governments, there’s lots of scope for sheeting home blame to the Tories and governments have been able to win in the face of adverse economic circumstances if they’re capable of telling a story about what they’re doing to put things on the right footing cf. Hawke and Keating.