- THE world economy will likely feel the impact of the global financial turmoil for another three years at least, the 2008 winner of the Nobel economics prize, Paul Krugman, said.
"We could easily be talking about a world economy that is depressed into 2011 and even beyond," the Princeton University professor and New York Times columnist said in Stockholm, where he will receive his Nobel prize this week.
"The scenario I fear is that we'll see for the whole world the equivalent of Japan's lost decade in the 1990s, that we'll see a world of zero interest rates and inflation and no sign of recovery and it will just go on for a very, very extended period," he said.
"On top of that, we'll have a series of extremely severe crises in particular countries in trouble," he predicted, pointing out that "we certainly see the roots of … Argentina- or Indonesia-style crises … particularly in the European periphery."
As for the United States, Prof Krugman, who has previously said a stimulus plan of at least 4 per cent of the US gross domestic product is needed next year, said today that amount might not be enough.
"If you're serious about the size of the hole that needs to be filled, that's actually modest," he said, stressing that amount "is not enough to prevent a further decline in the economy. It's enough to prevent a sharp decline".
The falling US housing market, which triggered the global financial crisis, will probably continue to weaken, he said, pointing out that recent estimates show "we have another 10 to 15 per cent to go".
Prof Krugman, who won the Nobel prize for his work on the impact of free trade and globalisation, said Washington should not hesitate to spend on infrastructure that would provide long-term benefit to the country, even if it means running up a high deficit in the short term.
"We're probably in the US going to run a deficit of 7 or 8 per cent of GDP next year. That's clearly not something you can do indefinitely," he said.
"If it's two years of massive stimulus and massive debts, that's okay. If it's two years of that and no sign that anything is getting better, then I start to worry," he said.
Prof Krugman will receive his Nobel gold medal and diploma along with 10 million Swedish kronor ($1.86 million) at a formal prize ceremony in Stockholm on Thursday.
The western world is very sick, Much like a heroin addict, The only way to get better is to go to rehab and stop cold turkey, But instead the worlds leaders continue to give us bigger "hits" Sure it gives short term relief and makes us feel a little better now, But the disease will only continue to get worse and we may well probably Overdose "Hyperinflation"
Our Economy is consumer based and there is only 1 way we can go, The more jobs and company's that are lost, the less people can consume. Our economy is a false one and we have set it up so that the only thing we can do is Fail.
We all know Kevin is going to shoot us up with as much heroin as he can, So is the privately owned RBA. Each $1000 to the pensioners, interest rate cut and budget deficit is an Injection, How many more Injections can the economy take before it completely dies ?
hbbehrendorff,
Unfortunately, I have to agree.
I have seen it coming for the last few years, and read about the point of no return regularly on finance pages and postings etc by economists, but , no one seems to listen.
I am prepared, what about the rest of you?
You can still make money, but not by negative gearing, you are doomed to fail. Forget about the rubbish that property always goes up in value. Expect your house values to drop like a rock over the next year.
I don't think it's time to store the tinned baked beans just yet.
There are so many factors to consider when trying to predict the economic future. No-one knows what will happen, and the range of predictions from trained economists shows that they don't know either. What we do know is the Australian system of borrowing for real estate is vastly different to the US, and their 'non'recourse' system, so the amount fo defaults here will be much less than the US.
A lot of areas will suffer losses of value, some much worse than others, but some of that will just be a regression to the mean. Some areas, like Western Sydney, grew at a ridiculous rate during the earlier part of the decade and this was clearly not sustainable. Other areas that have grown at a more steady rate may not see much of a loss at all.
If the governments decided not to spend, things would get much much worse, very quickly. Unemployment would go through the roof, household spending would grind to a halt, and we would have a deep recession / depression. The stimulus package, like the one Paul Krugman calls for in the US, keeps people in jobs.
The problem we had in Australia was that when the economy was strong, we didn't save any, and the government of the day couldn't spend it's gains fast enough. They blew it all on middle class welfare, and didn't have the foresight to see that one day the boom would end.
Government boost fails to attract buyers
INTEREST rate cuts and the increase to the first-home buyers grant appear to have failed to restore confidence to the property market with auction clearance rates dropping sharply over the month.
The slide was most pronounced in Melbourne, which recorded its worst monthly clearance rate since January 2006, The Australian reported.
The November clearance rate in Melbourne was down five percentage points on the previous month, and was 22 points lower than the figure recorded for November last year.
Australian Property Monitors senior economist Liam O'Hara said the market remained "lacklustre".
"The market never really looked like it was going to improve. There were some seasonal factors that led to a small spike in weekly rates during the month but these were due to seasonal factors," he said. "It's very lacklustre and people are still quite fearful (of taking on) debt."
In Sydney, the November clearance rate also fell, down four points from October to 42 per cent, 17 points lower than it was last November.
Brisbane recorded its worst monthly figures since January 2005. The clearance rate of 23 per cent was six points lower than the figure recorded for October and 33 points lower than November 2007.
In Adelaide, the clearance rate crashed a further 11 points from October to 37 per cent – 33 points lower than November last year, and the city's worst result since the turn of the century.
Mr O'Hara said the market needed to see significant improvements before mid-2009 – when the Rudd Government's first-home buyers grant is due to be reduced – if there was to be any hope of a revival next year.
"That's really where the point of no-return is," he said.
Read more in The Australian.
As it is proven time and time again a cough lolly does not fix a cold, There will be no 2009 recovery or 2010 recovery for that matter, If you can't afford to stay in the market for quite some years and take some big losses then you need to get out and liquidate while you can with minimum losses, Don't continue staking your life savings on never to come good fortunes anytime soon.
From The Age
The number of new homes built in Victoria is expected to rise next year, reflecting the lower interest rates and the effect of two Federal Government stimulus packages on the industry, a report said today.
The construction of new homes in the State is expected to jump 9% in 2009-10 to a total of 41,863 from 38,263 forecasted for 2008-09, according to the Housing Industry Association State and National Outlook, released today.
A shortage of homes in Victoria highlights the State Government's need to fast-track building projects and release land for development quickly, said HIA's acting Victorian executive director Robert Harding.
Despite the expectation of a lift in construction in 2008-09, the number of new homes is still expected to mark a decline 8% over the previous year, the association said.
Lower levels of building reflect the tight lending requirements and high interest rates of earlier last year. The dip in construction will leave a short fall of 7000 homes in 2008-09.
Nationally, housing construction is expected to stage a "moderate" recovery next year, the report said.
The number of new homes built is expected to jump 13% in 2009-10, to 149,100, from 132,000 in 2009-09, according to the Housing Industry Association. That would be a turnaround from the expected 17% fall in the current year.
"The First Home Owners Boost, mortgage rates at a forty year low, and the housing components of the Federal Government's Nation Building and Jobs Plan have the capacity to deliver a moderate recovery in residential activity," said HIA chief economist Harley Dale in a statement.
Since October, the Government has announced two major stimulus packages worth a combined $52.4 billion, aimed in large part at pump-priming the housing and lending sectors. At the same time, the Reserve Bank has lopped 4 percentage points from the interest rate since September, bringing it to 3.25%, the lowest since 1964.
By 2010-11, the HIA sees housing starts rising another 6%, to 158,100.
The Government is anxious to keep the housing and mortgage markets active through the global slowdown, because they account for such a large part of domestic economic activity.
Anecdotal evidence suggests the stimulus plans, which include a boost to the first time home buyer's bonus, are gaining traction.
Victorian housing developers such as Stockland, Mirvac, and Australand have noted an upswing in sales to first-home buyers, even as their first-half results slump.
Before the financial crisis accelerated in the second half of last year, the Government had hoped for more home construction to meet the shortfall created in part by growing immigration.
Today, Immigration Minister Chris Evans said the nation will slow its intake of skilled migrants in response to the weakening economy which is producing fewer jobs.
The numbers, released by HIA before the announcement from Mr Evans, showed underlying demand for 2009-10 is expected to be 193,700, far beyond the expected level of home starts. In 2008-09, there is a projected need of 190,500 homes in the country. And in 2010-11, HIA sees the underlying demand rising to 197,000.
On an upside if things stay depressed for three more years that means my fixed rate will reset to a lower rate. woo hoo. Doubtful but i dont think that will happen.
But as for preperations. Yes i have a few.
I bought my IP in a depressed market to start with so not as far to fall.
My IP was bought in a area that only boomed from a lower base so not overpriced in todays dollars.
6 years repayments in unused LOC if needed
PPOR to be paid of in just over a year which is withing my contract time for work.
Cash reserves.
Income insurance
Things can still go wrong but these measures help me sleep at night.So what happens to the loans if the house prices do continue to fall. If you have a property now at 95% and the value drops and the LVR now becomes 101% what happens? Does the bank come looking for the 1%-5%?
You can always go to South East Asia and teach english for living expenses and go fishing.. Take it easy don't worry about to much of what might happen and if does happen well so be it.
Read this and listen to the interview (click on radio) ….. http://www.thegreatbustahead.com/
From the website…
2008 was the victim of a self inflicted sub-prime financial crisis. This has nothing to do with the demographics based massive depression that is yet to come, as described in the book. The sub-prime consequences are however very similar though mild so far compared to what is coming our way. The book clearly spelled out that along the way unpredictable short-term (1 to 3 years) disruptive events could happen. The sub-prime crisis is just that. It should be regarded as the “warmer upper” or “hors d'oeuvre” for the big one that is now rapidly closing in on us all.
The great unknown at this point is whether the sub-prime based crisis will drag on beyond 2009 and then blend into the demographics based massive decline which, per the book, could begin as early as 2009-10. Being short-term by definition, this period is totally unpredictable.
There is the strong possibility that we will see an interim recovery manifested as a “last hurrah” rally in 2009 of perhaps 30% on the Dow after a new low of around 7,000. However, this is very speculative. The only historical certainty is that in the long-term the Dow always returns to the demographic. This lends some credence to such a rally as the immutable demographic, as you can see from the chart, remains in a very strong upswing as it moves toward its 2012 peak before crashing. Also waiting in the wings ready to surge back into the markets are trillions of dollars earning very little in money market funds"
2011 might be conservative!!
Batten down the hatches boyz and girlz,
Vicky
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