Hi all,
I was listening to the radio on the way to work a couple of days ago and the DJ on the morning show said a few things that made me see the current financial crisis from a different perspective.
He said “What financial crisis. All I know is I have $400 more a month cause my mortgage payment has come down, I spend about $100 a month less on fuel and the retailers are offering discounts left right and centre to get us to spend. If that’s a financial crisis for me, then bring it on”.
This man is in his early forties and his wealth is tied up in his own home and super. Considering he has to have a place to live and he won’t retire for another 25 odd years giving his super time to recover and go on to bigger and better things and he probably has as secure a job as the average aussie, you have to give this average Joe view some thought. Its simplistic but I can’t argue too much against his thinking.
Are we all over analyising and worrying unnecessarily?
Any comments?
(Yes I know and have read all the Doom & Gloom merchants views on heading for the hills and growing vegetables to survive. I’m looking for some intelligent comments on this point of view)bespoke,
Hi, Yes the above is true to some extent.
As you point out the superannuation has lost 25% or so in the last 12 months. Maybe OK for him if he has 25 years to go, but not so good for the baby boomers just starting to retire. It's a crisis for them.Also Australian households have yet to be exposed to the global meltdown as yet – but we will get to it shortly, unemployment etc is on its way.
You have to think something BIG is happening around the world, what with 2 or 3 Trillion dollars being injected into the system in America thus putting them into debt even more. Now up to about 9% of GDP at last count, should be less the 2 or 3%. Future Americans are going to pay a large price for this debt.So I suppose we could go on , but just wait and hope that we in Australia can ride out the financial crisis as it unfolds, it takes many months for it to slowly eat up our surplus as China etc wind down.
On a personal level, this is pretty much true, but we are yet to see the effects of the global slowdown. Unemployment will rise, growth will slow and Australians as a whole will be worse off.
On the micro level, some people will lose their jobs, which could be devastating for them, some will not be able to afford the repayments on their house. For others, particularly those in 'recession proof' industries, they will fell minimal effect, or, as you say, the effect will be positive, as interest rates are low and petrol is down 33%.
If you are insulated from it, as Dan notes, you won't feel the brunt of it. However, if you lose your job, fall behind in the mortgage, take maternity leave & can't get back into your old job you'll say it is the worst it has ever been.
Its a little more complicated then that, Of course people will be experiencing higher purchasing power at the moment, The employed people anyway.. But that will be short lived.
Currently we are experiencing a lot of deflation, This is due to the stock market, People are pulling there money out left right and center and putting it into the bank because they think its more secure, Though at the same time It does not make much sense that we are seeing this Deflation considering the amount of money being printed.
During the great depression the money supply was decreased by a third, So it was a deflationary depression, And by no means was it a good thing.
Like I said before, Our current state of deflation will be short lived because I expect a lot of western countries will experience stagflation or even hyperinflation (Refer to Iceland)
Even if deflation was to continue, our purchasing power would eventually diminish substantially as wages would start to come crashing down.
To some deflation might sound like a good thing, But its not if you can only earn $100 a week.
A couple interesting things Id like to note.
Unemployment was 30%+ during the great depression
I dont know if this one is true but I read that almost 40% of the worlds population works in the food industry some form or another, Compare that with the amount of farmers in 1st world countries and you will find that only a few percent of our population works on farms.
One last thing I think is important is the fact that Australia needs to change its economy in order to survive in the future, Our trade deficits are growing so fast its not funny, Soon we will not have the money required to purchase our imports because we are a consumer based economy, And No just our mines alone is not enough exports to sustain our whole economy, Unless we start making more exports and more production jobs we will eventually see our whole country collapse just as the American empire is collapsing now.
It might sound grim to all you pen pushers on 100K a year not producing anything but soon enough the Farmers working 14 hours a day for $300 a year will be valued more.
Also picture another Deflation scenario.
Everything in price comes down say 50% within a year, Including wages…
But your $350 000 home loan is still the same…
The big diff I see between this and 1991, was that I feel we were in recession about two years before it was called. Among small business they started to grind down around 1989 but we called it the 1991 recession. It was a very slow wind down.
This is like a car crash by comparison. What has surprised me is how many people have laid people off before they have felt any effect. This accumulates and snowballs, leading to the reality everyone fears. Hopefully it will be short sharp and over soon. (around 2 years).
Among my clients many are already setting in place future plans and counting who among there competitors who will fold, and what of the remains they can pick.
The big question for me is the effect that unemployement forced sales, tighter loan conditions fewer lenders will have to the property market, property values, abilty to fund debt. Think some of my business clients may be in real trouble next year, not through making losses but by having the extensive funding that they are used to using shrink if/when house values reduce.
How much they will go down, is open to conjecture but we will find out soon enough.
Regarding super I am amazed how greedy many of my clients have been. One client had a 800K portfolio of blue chippers, but moved to 85% of Mac managed funds. How to drop 1/2mil (had grown to 1M). Why in your late 70s do people take such risks…many of my over 60s were in very aggressive funds, the losses are around 40%+.
A recession is great………….. If you keep your job.
He can only advise you on what limited information he has available to him at that time … is he smart or did he say something smart … lets see if he's wright or wrong 90 days from from now??
D
What financial crisis? Dont get too cocky!!!
Im no Dooms dayer and infact if I had the secure funds, Id be buying up left and right if i could right now. However even though Im regarded as a highly skilled proffessional in my area of expertise within the construction industry ,I still have been made redundant twice in 3 months. Lucky for me I tend to pick up work relatively easily but not so lucky for alot of my colleagues. There are no jobs in my area of expertise, not advertised and not on any job ajency books, only positions via "who you know" And this started well before the stock crash. There are many companies folding or loosing large numbers of staff…. im sure its happening in other industries too…..still im upbeat about the near future and agree a recession isnt such a bad thing if you can get work and get by,, …..remember there were people who saw opportunity and made their fortunes during the 1920s depression.
Financial crisis, paradigm shift…call it what you want…..change is the only constant
Yesterday 150 people lost their jobs in Victoria from a manufacturing company that was a US company that decided to cut costs.
The problem comes down to momentum. High interest rates, high petrol, high taxes (stamp duty) slow down the economy.
Now that the interest rate is lower and petrol is lower the slow down is still happening because of what is known as the lag effect in economics.
The effect of the cuts in interest rates and petrol will take time to take effect in the economy.A lot of people have no savings and credit card debt and would last less than 4 weeks without income.
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