OK, maybe not a cheery topic to bring up before Christmas (maybe the right topic given our dependence on credit cards to stuff the stockings) but I’m really lost.

How is it that the Aussie and world economy keeps chugging along when:

The Yanks haven’t paid for anything in decades. They keep racking up trillions in government deficits and consumer debt, financed by Asian central banks buying US bonds. So I’m told.

We may have a government that doesn’t want to borrow money any more (and runs down our public infrastructure as a result) but that hasn’t stopped everyone else. Despite sitting on a huge mining boom, we are still running persistent trade deficits – 22 out of the last 26 years we’ve bought more than we’ve sold. Seems we actually pay the Chinese more for the stuff they manufacture then the ore and coal we ship them. Who would have thought?

Ordinary people can’t afford houses within 90 minutes of the CBD, mainly (?) due to investors chasing ever increasing capital gains, while writing off their expenses at the ATO. Seems it’s easier to go from owning 1 house to owning 10, than it is to get into your first one. Unless mummy and daddy own 10 of course.

The US have had to face a reality check about lending more money to people than they can afford to repay, but then again, maybe they can just rewrite those pesky contracts so that no-one has to face the music for making a bad decision.

All this with the IPCC telling us things are worse than we thought and we really have to get serious guys. Guys?

Or am I missing something? What keeps this whole roundabout of debt / wealth whizzing around?

Money , or the appetite for it.(GREED)!!!!!!!

Money , or the appetite for it.(GREED)!!!!!!!

Sure, but if I keep spending much more than I earn, eventually someone taps me on the shoulder and the party is over. Doesn’t seem to work the same way for countries though.

Aust in worst ever trade deficit despite resource boom

4/12/2007 – Australia has recorded its worst ever trade deficit, despite being in the midst of what is one of the biggest commodity booms in history.

The goods and services deficit blew out to a record $2.983 billion in October as the drought and ongoing capacity constraints in the economy continued to weigh on exports.

The figures released on Monday by the Australian Bureau of Statistics (ABS) showed exports fell three per cent in October while imports rose two per cent.

“It just doesn’t seem to make sense,” CommSec economist Craig James said… “You quickly run out of excuses for a trade deficit of banana republic proportions.”

Trouble is money is so easy to borrow that people just keep spending ,A greater of this is on imported goods, ergo ,rising credit card debt x%x rising trade defecit. Over simplified but still true

When / how does it stop?

Often wondered that myself.

Perhaps this video might shed some light…..(warning: it’s kinda long)

Money as debt.

That’s a very enlightening video.

Basically the big banks have a license to print money as new debt. The borrowers buy stuff, so the money goes back into the banks. The whole money industry just siphons off its cut of all this debt washing around.

The whole system depends upon more and more debt being piled up, and unlimited economic growth – despite the fact that real resources are finite.

No wonder everyone is trying to avoid real commitments at Bali.

Wonder if the makers of the video are pinkos though – they advocate governments controlling the money supply directly. Isn’t that what the Russians tried, with their centralised economic planning?

The modern mantra is that markets are more efficient at finding the true value of everything. If can actually start to link environmental outcomes to market pricing (i.e. carbon trading) then maybe all this will reach a new equilibrium..?

Great video

Scary stuff!!!

I just saw this on news.com and looked at it in a whole new way.
http://www.news.com.au/stor...

Just thought I would bump this cheery thread.

What keeps this whole roundabout of debt / wealth whizzing around?

Apparently not as much as we thought…

Good call (the bump!) especially with the world economy as it is presently – If I can borrow your crystal ball for the lotto numbers it would be appreciated…lol

Just as a side note – I was informed that housing interest would be around 5 percent come January, give or take a month or two…

part of the reason we have a trade deficit is that while we are primary product rich (minerals, livestock etc), we do not “value add” to our assets. we sell them to other countries, then we buy the stuff back value added.

housing interest would be around 5 percent come January

well then, time to hop on the next bubble – woo hoo !

I was informed that housing interest would be around 5 perceme January, give or take a month or two…

Political Correctness is doctrine fostered by a delusional minority and by the media, which holds forth the proposition it is entirely possible to pick up a turd by the clean end.

Impossible – it’s only an opinion, not a fact!

SNIOP

Where did you hear this Ditty? I thought I heard Alan Kohler on ABC news the other night say something similar but was not paying full attention…. I thought I heard him say it would go down to 4.5%....is that in line with what you heard? Our fixed rate ends in Jan next year, so it could be bloody lucky timing for us!

talking about house affordability (in the OP), saw yesterday in australia the median house costs 6 times the median income, which is almost twice the current american rate, and their economy is collapsing due to over-extending mortgages!

housing just cant stay where it is right now, something will give

The US have had to face a reality check about lending more money to people than they can afford to repay, but then again, maybe they can just rewrite those pesky contracts so that no-one has to face the music for making a bad decision.

All this with the IPCC telling us things are worse than we thought and we really have to get serious guys. Guys?

Or am I missing something? What keeps this whole roundabout of debt / wealth whizzing around?

Good call Muntz. Any predictions on the Aus$ in the next few months?

I wonder how much longer the world business community is going to continue to write contracts in US$?

The business in the US has occured before, way too much debt, the government did what it is doing now and bought all the dodgy loans, reposessed houses that werent worth as much as they paid for them. They held on to them for a while, and eventually made a profit selling them later. The banks cant do that, they need to liquidate those assets straight away

The same thing will happen this time, although in the debate they were all talking about making homes affordable too, which cant be done if they want to recoup what they spend

Any predictions on the Aus$ in the next few months?

At the moment the AUD is just a big crap shoot. Massive volatility due to spooked people bailing out of commodity exposed currencies, and everyone else sitting back waiting for everything settle down.

I guess in the longer term it all comes down to one question: is the China / commodities / mining boom kaput? Or is this just a speed bump along our road to riches from supplying raw materials to manufacturers in India / China / etc?

Interest rates will probably drop massive amounts over the next two years. Hopefully housing prices go the same way. The key will be how bad unemployment gets.

Whatever happens though, the picture is looking very bleak.

When lenders forget that cashflow is king the wheels fall off. Individuals with large credit card debts own most of the debt our country has, a plasma debt if you like. Our kids need to be taught to balance a cheque book at school the same way they need to learn how to eat right as the homes are not providing a good example in many many cases.

The current mortgage crisis is the replica of Japans last 20 years. After a major heads up, they are doing OK again and the media are not showing this example at all. Hysteria creates major volatility in markets and we have to ask the medias role in that as much as the banks. Ask yourselves where all the ‘new’ super fund money is getting parked? It has to go somewhere each week.

I rather liked the UKs ban on short selling the markets. Stops fat cats taking the piss. ie you can sell only what you own not 10 times what you have to square up later. Leverage is a major issue that will get dealt with sooner or later.

Bleak? Only for those highly leveraged in a market or with a loan that needs refinancing if their current lender goes bust. Bleak if everyone loses their heads rather than seeing opportunities from the massing sell offs.

who out there is in a tough job situation? im lucky in the sense that my job is secure, so i dont think im in trouble myself. i suspect if jobs get lost my brother could have some trouble though

and my girlfriend may find it hard to get a job in the next few years

at least houses should drop

feel a bit sorry for my mates who have done or will be buying houses currently though

Where did you hear this Ditty? I thought I heard Alan Kohler on ABC news the other night say something similar but was not paying full attention…. I thought I heard him say it would go down to 4.5%....is that in line with what you heard? Our fixed rate ends in Jan next year, so it could be bloody lucky timing for us!

My bro inlaw is a banker in Melb!

I also read here that people think housing prices will drop – I don’t think they will after xmas – we won’t have the japan and the later US crisis of 50 percent plus drop in values – my thought is they will increase so I wouldn’t feel sorry for people buying now, feel sorry for those that can’t!

I’m retiring shortly and my super is giving me a headache…lol what to do – where to invest etc… scarey stuff but money looks safest at the moment – with the dollar dropping and tourist visits looking healthier maybe a few stocks in that area may be a thought also…

why wont housing prices drop here? housing is less affordable than it is in america, significantly so

no one is buying. many houses are going to auction and are passed in without bids

i cant see how they awill remain so inflated

SoulmanZ houses will remain the same, the comparative value of our houses against American houses has remained the same given that the dollar has dropped 40%
the dollar will probably slowly creep up again as people regain their senses so we will have a flat patch for house prices rather than a drop.
a low dollar is good for most of my neighbours so long as they can get something to grow between now and x-mass.