Walk-Off HBP alerted me to this article in the SMH.
Jonathan Tepper, a UK based economist and founder of research house Variant Perception, is convinced Australia is in the midst of "one of the biggest housing bubbles in history".
The Australian Financial Review reports about how he and local hedge fund manager John Hempton scoped out the apparent epicenter of this bubble, Sydney's western suburbs, and walked away thinking it was even worse than they'd originally thought. It's a fascinating story.
In a subsequent report to clients, obtained by Fairfax Media, Tepper uses the following charts to support his thesis.
"The Australian housing bubble could not have become as ridiculous as it is without the help of easy financing," he writes.
"Over the past few years, over 40 per cent of all new mortgages originated have been interest-only mortgages.
"This is truly Ponzi financing, where home buyers only make money if their houses keep rising in value," he writes, later describing interest only loans as a "disaster waiting to happen."
There it is, the Ponzi word. If you go to the article linked at the top, you'll see some interesting charts that tell us just how much risk people have taken on to secure their homes. The funny thing is that it's only foreign analysts who voice these kinds of concerns and somehow commentators in Australia downplay these voices claiming that somehow the Australian experience is going to be different to all the other times a Bubble popped. The RBA occasionally mentions they're concerned about the residential market heating up, but they have interest rates at record low rates. The bias is still towards easing and probably right down to zero interest rate policy in the not too distant future.
It's a far cry from the times I remember where Reserve Banks would jack interest rates up to get on top of inflation. Now the RBA is dead scared of a drop in asset prices, whether they be shares, property or bonds. That has led to the easy money in the wake of the GFC, and in a roundabout way, the extended run of the property bubble that was already running up a head of steam, right up to the GFC. Even Kevin Rudd giving out money at the height of the GFC amounted to shoring up confidence and at the core of that decision is the desire to preserve asset prices, even if they are inflated. We basically had the luxury of not having our property bubble blow up during the GFC.
For a while during the heat of the GFC we heard the phrase 'moral hazard', but we're only beginning to see the ramifications of the policies that bailed out banks and by extension people who were speculating heavily in the property market. All the low interest easy money went straight back into re-inflating the prices and prices simply went up, forming its own positive feedback loop to assist with the Ponzi scheme nature of our property market.
Of course none of this is stuff you haven't read before. We just don't know what the shock factor is going to be to pop the bubble. Until then those who deny its existence will continue to deny its existence and rationalise the prices we see.
No Substantial Tax Reform
All these governments we've had this decade have come to power, announced tax reform packages, cherry-pickedwhatthey wanted and run into flack. As such it surprises me none that Malcolm Turnbull is backing right away from tax reform. Too many vested interests are clamouring away wanting to protect their little bit of interest. They tried a discussion on raising the GST only to find it wouldn't do nearly enough unless they properly widened the base, and then they refused to do that because it would mean taxing education and thus expensive private schools getting even more expensive, so they wanted to raise it by 50% instead, but realised there was no way of compensating the low income households so that went by the wayside.
So in most part, the things they've tried to float have resulted in backdowns. Now they're going to only do minimal changes.
Of course none of this is stuff you haven't read before. We just don't know what the shock factor is going to be to pop the bubble. Until then those who deny its existence will continue to deny its existence and rationalise the prices we see.
No Substantial Tax Reform
All these governments we've had this decade have come to power, announced tax reform packages, cherry-pickedwhatthey wanted and run into flack. As such it surprises me none that Malcolm Turnbull is backing right away from tax reform. Too many vested interests are clamouring away wanting to protect their little bit of interest. They tried a discussion on raising the GST only to find it wouldn't do nearly enough unless they properly widened the base, and then they refused to do that because it would mean taxing education and thus expensive private schools getting even more expensive, so they wanted to raise it by 50% instead, but realised there was no way of compensating the low income households so that went by the wayside.
So in most part, the things they've tried to float have resulted in backdowns. Now they're going to only do minimal changes.
The minimalist reform approach would raise sufficient funds to offer marginal tax relief to middle-income earners while also freeing the government to prosecute a massive scare campaign against Labor, claiming its negative gearing policies would smash the economy, wiping $278 billion off the national balance sheet through a 5 per cent plunge in housing values.
The government's final package, due to be presented within weeks, will not restrict negative gearing to new houses, as Labor has proposed, but merely impose caps on the dollar amount of losses claimable, while also reducing the amount able to be directed into superannuation contributions.
The proceeds, perhaps just a few billion per year, will be available to fund an upward adjustment of the $80,000 tax threshold, providing relief to only the top 25 per cent of earners.
And even that might be a bit too courageous for Sir Humphry.
If the Coalition thought bringing in Malcolm Turnbull as Prime Minister was going to fix things, they certainly haven't allowed him to fix things. There seems to be a significant gap in the understanding of the Coalition party room whereby they fail to grasp that the reason Turnbull is personally popular with the electorate is because the electorate believe in the personally held politics of Malcolm Turnbull. The fact that they constrain him from enacting and exercising those personally held politics locks the Coalition out of what people want them to do. It's not brain surgery; it's just having to grow up and understand the hardline right discourse is never going to win the middle, even if you send out the most popular man on your side to front for it.
Be that as it may, the degree to which tax reform is necessary is most likely proportional to how much you believe there are problems stemming from the current tax system. If one does not think there is a property bubble caused by negative gearing, then one probably sees no urgency in fixing things. This is in line with the Coalition thinking on Climate Change where, again, the less they believe in the science, the less they think they have to do. Conservatism as highly touted by these munchkins simply seems to mean do-nothing-and-she'll-be-right-mate.
Never more has Australian politics resembled a line of ostriches, all with their heads in the sand.
If You Thought We Were Bad
There's one thing worse than Australian politics right now and that's US politics. Donald Trump is trouncing the Republican field of contenders. Perhaps not shockingly, Trump has won the primary in Nevada, thus putting himself into the driver's seat.
The thrice-married real estate mogul won among Republican Evangelicals. Having vowed to round up and deport 11 million mainly Hispanic undocumented immigrants, he won among Republican Hispanics.
Famous for lambasting perceived female critics as being fat, or ugly, or menstruating, he won among Republican women.
He smashed Marco Rubio, the man the party hopes might rally enough support to defeat him, and Ted Cruz, who still appears to be determined to take down Mr Rubio before tackling Mr Trump.
Mr Trump's hostile takeover of the Republican Party now seems to be almost unstoppable.
In the words of a Fox News political editor, "bladder-voiding panic has come to official Washington".
The Republican establishment loathes Mr Trump not only because so many see him as unfit for office, and not just because they don't believe he could win a presidential election, but because they do not consider him to be a true conservative, let alone a true Republican.
Everybody in the establishment would be alarmed at this development while ignoring its causes. It's quite funny if it weren't so troubling, but for years the US Republican party has been taking on a harder edge beyond simply being crypto-fascists. Now that they have a full-blown fascist demagogue running roughshod over their own candidates, they can't put a handle on him. Their dalliance with fascism has turned to burn their house down. Donald Trump and his supporters are the Frankenstein monster created by the Republican Party. If nothing else, it is terrifying.
If it turns out that Trump gets the nomination and faces off against Bernie Sanders, it would be a historic defeat for the Washington establishment. Trump versus Sanders would actually be a deep echo of the 1968 elections when Robert F. Kennedy was gunned down, and Nixon took in the racist white vote into the Republican Party. It would be the showdown that the political establishment has been avoiding for 48years.
No comments:
Post a Comment