Aussies and NZers: Four seasons in one protest

[Jeor]

2 hours ago, Paxter said:

So another 50 basis points hike from the Reserve yesterday and I think we'd expect to see another 50 in October and 25 in November before they start to become more data dependent. Lowe isn't expecting inflation to peak in Australia until the end of the year. 

Supposedly October is a toss-up as to whether 25 or 50. The fuel excise is coming off which will contribute to inflation though not the RBA's preferred measure of trimmed mean inflation. I do feel sorry for homeowners who bought at the top of the market in 2021. Although I personally would have been more cautious about the RBA's infamous "low until 2024" promise, I can understand why some people (especially first-time homeowners seeing the tremendous run-up in prices) desperately jumped in.

On 9/5/2022 at 8:55 PM, The Anti-Targ said:

It is entirely wrong to compare California, a state that does not have currency sovereignty to a country that does. Countries that have the monopoly right to issue their own currency can never run out of money.

Sovereign countries can never run out of money, but they can certainly run out of money with any value which would have the same effect. Sri Lanka's the obvious example, being unable to pay for imports as their currency is worthless. Australia has more of an export industry which helps prop up the currency (I think the AUD is the 6th most traded currency, which shows it has outsize influence compared to our relative position). And with reference to the US, the almighty power of the USD distorts things somewhat as their currency is not going to be worthless anytime soon (hence their gigantic deficits which don't seem to have a major effect on them).

I'm not super well-read on Modern Monetary Theory but it sounds like you're advocating something like that. Deficits are meaningless, and governments can (and should) spend as much as they like and print as much money as they want, with the only limits on this being currency devaluation and inflation. There are some serious economists who acknowledge some merit in these ideas, so I'm not rubbishing it entirely. But I think MMT was easy to say when we had the 40-year non-inflation period and the Sri Lankan case shows that currency devaluation is a real risk too.

On 9/4/2022 at 11:20 AM, Paxter said:

For the kids’ benefit you’re probably better off getting the government to lever up and spend it on green policies!

I'm more open to green policies than most Liberals (ala Turnbull) but I'd still rather do without the negative effects of gigantic deficits. To be fair, there are some policies that don't cost the government very much that should be implemented (e.g. raising sustainability standards for new builds) and others that could have costs mitigated (e.g. subsidising EV purchases and building more EV structure, while introducing some general road usage tax on all vehicles).

 

On 9/5/2022 at 4:59 PM, felice said:

Worms are vital to a healthy ecosystem!

While I'm still not convinced (and I always hated worms and slugs and anything without legs!) there are some interesting ideas here, though they would require an incredible mind-shift in the way people think about government.

[Paxter]

7 minutes ago, Jeor said:

Although I personally would have been more cautious about the RBA's infamous "low until 2024" promise, I can understand why some people (especially first-time homeowners seeing the tremendous run-up in prices) desperately jumped in.

Meh. If you think when you borrow money that the central bank's job is to keep your interest bill low, you deserve to learn a difficult lesson. 

[The Anti-Targ]

1 hour ago, Jeor said:

 

Sovereign countries can never run out of money, but they can certainly run out of money with any value which would have the same effect. Sri Lanka's the obvious example, being unable to pay for imports as their currency is worthless. Australia has more of an export industry which helps prop up the currency (I think the AUD is the 6th most traded currency, which shows it has outsize influence compared to our relative position). And with reference to the US, the almighty power of the USD distorts things somewhat as their currency is not going to be worthless anytime soon (hence their gigantic deficits which don't seem to have a major effect on them).

I'm not super well-read on Modern Monetary Theory but it sounds like you're advocating something like that. Deficits are meaningless, and governments can (and should) spend as much as they like and print as much money as they want, with the only limits on this being currency devaluation and inflation. There are some serious economists who acknowledge some merit in these ideas, so I'm not rubbishing it entirely. But I think MMT was easy to say when we had the 40-year non-inflation period and the Sri Lankan case shows that currency devaluation is a real risk too.

 

That's the oversimplified version of MMT, which of course means it's mis-represented. But Sri Lanka's problem was not the money supply, it is other structural problems with the economy, that simply increasing money supply would not address.

According to this article https://braveneweurope.com/fadhel-kaboub-no-mmt-didnt-wreck-sri-lanka the problem for Sri Lanka was not lack of currency sovereignty, but lack of other sovereignties. 

Quote

 Sri Lanka has three structural economic weaknesses that were systematically reinforced via mainstream economic policies: 1.) lack of food sovereignty, 2.) lack of energy sovereignty, and 3.) low value-added exports. These deficiencies imply that accelerating the country’s economic engines leads to more pressure on its external balance, a weaker exchange rate, higher inflationary pressures (especially food/fuel/medicine and basic necessities), and, as a result, it leads to the classic trap of external debt.

And of course it made the disastrous decision that agricultural fertilisers are unhealthy, at the same time as lacking the foreign exchange reserves to pay for the imports, so they destroyed agricultural output, especially rice, in the middle of a global food crisis. All of Sri Lanka's problems were decades old chickens come home to roost all at the same time.

[Impmk2]

3 hours ago, Paxter said:

Meh. If you think when you borrow money that the central bank's job is to keep your interest bill low, you deserve to learn a difficult lesson. 

That's very heartless. The kind of thing I'd expect a conservative politician to say.

A large number of people are going to end up in negative equity and utterly screwed by this combination of steep inflation, interest rate hikes, and no real wage rises in a decade.

When I was in my late 20s and first getting on to the property market I thought I'd planned pretty well, but I certainly never gamed out a once in 30 years spike in inflation.

[Jeor]

20 minutes ago, Impmk2 said:

That's very heartless. The kind of thing I'd expect a conservative politician to say.

I think @Paxter will be more horrified at the conservative politician jab than the heartlessness!!

While I am quite careful with my money and budget conservatively, my financial situation and living situation allow me to do that. Our family took a calculated risk and upsized our housing during the pandemic. Our finances were good, with a second kid on the way we were always going to have to upsize eventually, and the pandemic (when initially house prices fell and no one knew where they were going to go) looked like a good opportunity. We bought in October 2020 which was just before things started to take off. But I can tell you we had our hearts in our mouths when I bid (and won) at the auction right at the limit of what we were comfortable spending. We didn't count on the RBA and assumed we would have higher repayments down the track. But the low rates allowed us to bridge the gap of repayments on a large loan until we sold our old property 6 months later in what was then a steeply rising market and really paid down the loan with the proceeds. Afterwards we locked in a 2.09% rate for 3 years (expiring in August 2024, so I'm quite comfortable at the moment). Calculated risk but also some luck involved.

Contrast that to my friends (also with two kids) who hesitated and bought 12 months later, where history is now treating them brutally. But I can understand them. They desperately needed to upsize, being in a 2-bedroom apartment, and when it comes to family circumstances you can't always make the best/right economic timing for housing and you have this ticking time bomb in your head going off as your kids get born and grow bigger, and all of you need more space. The 2nd parent now has to go to work and they rely on grandparents to provide free childcare. Did they budget more loosely than me? Yes. But budgeting that way wasn't just down to their supposed irresponsibility, life circumstances are bound up in that too.

[Paxter]

The idea of me being a conservative politician is novel. I’m so lefty I tend to make Jeor look like a Tea Party member.

And I’m afraid that if you want inflation under control, you will need to hike rates. See Volcker, Paul.

ETA: Most people we should actually be feeling really sorry for can’t even contemplate home ownership. For those who can afford to borrow, I think there needs to be personal responsibility. I was probably harsh in my phraseology, but the reality is that borrowing large sums of money is risky and no one is being forced into it. 

ETA: And for full disclosure, I’m not and probably never will be a homeowner. So it’s easy for me to throw a few stones over the fence at the people dealing with the stress of a mortgage.

[Impmk2]

12 minutes ago, Paxter said:

The idea of me being a conservative politician is novel. I’m so lefty I tend to make Jeor look like a Tea Party member.

And I’m afraid that if you want inflation under control, you will need to hike rates. See Volcker, Paul.

Yes. But stupid young people not financially planning properly talking point is a straight from the conservative playbook. Smashed avo on toast etc.

And yes, the hikes are necessary. That doesn't mean we need to celebrate them.

[Paxter]

Just now, Impmk2 said:

Yes. But stupid young people not financially planning properly talking point is a straight from the conservative playbook. Smashed avo on toast etc.

And yes, the hikes are necessary. That doesn't mean we need to celebrate them.

Oh you were comparing me to Barnaby. I guess that puts an end to my lefty street cred.

[Impmk2]

Look I wasn't trying to be personal. I just find it odd that an avowed leftist would be preaching personal responsibility and celebrating people getting screwed at the hand of the free market.

And no, that doesn't mean I don't have extreme sympathy for people living in poverty who are getting hit too.

[Paxter]

5 minutes ago, Impmk2 said:

Look I wasn't trying to be personal. I just find it odd that an avowed leftist would be preaching personal responsibility and celebrating people getting screwed at the hand of the free market.

And no, that doesn't mean I don't have extreme sympathy for people living in poverty who are getting hit too.

If I had carte blanche, I certainly would not be supporting a free market for housing! I’m disgusted by the way that a basic need has become the realm of speculators.

In that sense, you can’t blame me for celebrating that some tax-advantaged investors are finally going to feel a bit of financial loss. Unfortunately some owner-occupiers who took on massive variable rate debt will also face the music.

[Impmk2]

Oh I don't blame you for that, but the I think the investors will largely be fine. The rental market is so tight right now, they'll jack the rents and ride it out. It's the young people I know who have gotten into the market in the last couple years while rates are low and prices sky high I'm worried about (along with as the people who are renting or just can't afford the rent anymore).

[Paxter]

24 minutes ago, Impmk2 said:

Oh I don't blame you for that, but the I think the investors will largely be fine. The rental market is so tight right now, they'll jack the rents and ride it out. It's the young people I know who have gotten into the market in the last couple years while rates are low and prices sky high I'm worried about (along with as the people who are renting or just can't afford the rent anymore).

If we’re talking Syd or Melb, how did they afford a deposit at such sky-high prices? You’d need either a good job or wealthy parents (and probably a college degree or all of the above). So I think they’d have some buffers.

The other capital cities I’m not so sure about. Probably a lot easier to muster a deposit. But needed to stress test their mortgages and personal finances appropriately (APRA requires a 3% buffer, which was spot on unless we get well above 3). 

[Impmk2]

2 hours ago, Paxter said:

If we’re talking Syd or Melb, how did they afford a deposit at such sky-high prices? You’d need either a good job or wealthy parents (and probably a college degree or all of the above). So I think they’d have some buffers.

The other capital cities I’m not so sure about. Probably a lot easier to muster a deposit. But needed to stress test their mortgages and personal finances appropriately (APRA requires a 3% buffer, which was spot on unless we get well above 3). 

Yep simple answer - I'm in Adelaide, probably one of the easiest cities to get a deposit together. And the people I know are generally buying a fair way out of the CBD and commuting. But yeah, almost all are couples, mostly uni educated, with no kids.

If it was just a matter of the rates going up wouldn't be an issue. It's that everything is spiking at once. And if the RBA manages to crash the economy it'll be young people who wear the pain again, as with the GFC. 

Of course if inflation comes under control and we get a few solid years of increasing wages, coupled with a decline in house prices this could all be a good thing. I'm just quite skeptical that'll be the outcome. Business seems intent on screwing the workers with minimal/no increases even while reporting record profits.

[The Anti-Targ]

I challenge the idea that raising interests rates is necessary. This inflation spike is 80% caused by supply problems, how does raising interest rates help to fix a lack of supply? And then there is the opportunistic profiteering happening helping companies make record profits to go along with the inflation. All higher interest rates will do is reduce investment in fixing the supply problems and thus make the supply problem worse.

[Paxter]

2 hours ago, The Anti-Targ said:

I challenge the idea that raising interests rates is necessary. This inflation spike is 80% caused by supply problems, how does raising interest rates help to fix a lack of supply? And then there is the opportunistic profiteering happening helping companies make record profits to go along with the inflation. All higher interest rates will do is reduce investment in fixing the supply problems and thus make the supply problem worse.

Massive fiscal stimulus, unprecedented central bank liquidity and strong consumer and business balance sheets are not contributing to high aggregate demand? What about historic, record-low unemployment?

This crisis is not just about energy, wages, rent and food, though of course you are right that the supply side is broken too. Unfortunately for central banks, they only have a blunt, demand-side tool to fix the problem.

[The Anti-Targ]

1 hour ago, Paxter said:

Massive fiscal stimulus, unprecedented central bank liquidity and strong consumer and business balance sheets are not contributing to high aggregate demand? What about historic, record-low unemployment?

This crisis is not just about energy, wages, rent and food, though of course you are right that the supply side is broken too. Unfortunately for central banks, they only have a blunt, demand-side tool to fix the problem.

High consumer balance sheets? Have I been asleep the last 10 years and workers at all levels received massive pay increases without me noticing? I've certainly received a 0% pay rise three years running, so my balance sheet hasn't been bloated, and my experience has been the same across tens of thousands of public employees. Last I checked a mere 7-10% inflation has sent people over the edge into a cost of living crisis. If there were big consumer balance sheets a 1 year 7%-10% inflation rate would not have sent people to the wall. Low unemployment, in itself, does nothing to inflation, and the wage rise flow on also only has a modest effect on inflation. Another myth we've been told so that wages can be kept as low as possible and high profits and bonuses can keep flowing to the top. Even the wage growth in the last 12 months has not matched this rate of inflation.

If you want to reduce the money supply, just force banks to buy a shit load of govt bonds. That takes money out of circulation immediately.

[Paxter]

Consumer balance sheets are in a very strong position in Aus. 

I can’t speak for the NZ position.

[The Anti-Targ]

Fair enough, cost of living crisis perhaps doesn't exist in Australia. In which case, why the desperate need to take drastic action to curb inflation? Is there a danger of slipping into hyper-inflation? The bogey-man of inflation >4% is entirely psychological, everyone imagines that as soon as inflation hits x% hyperinflation is assured unless there is drastic action.

So long as the economic picture is one of a cyclical event and not a spiral to hyper-inflation (which is always caused by either supply shocks or corruption or both, not by demand) then the institutional response on the demand side should be modest, a bit less govt spending, taxation on higher income brackets, windfall profits taxes on business, and perhaps modest interest rate increases. But the response to supply driven inflation, which we are seeing this time around, needs to be different, the response needs to be oriented towards increasing supply, increasing productivity. Energy supply inflation should be met with significant investment in energy infrastructure, energy production, and energy self-sufficiency. Bumping up interest rates is a disincentive to such investment.

[Skyrazer]

14 hours ago, The Anti-Targ said:

I challenge the idea that raising interests rates is necessary. This inflation spike is 80% caused by supply problems, how does raising interest rates help to fix a lack of supply? And then there is the opportunistic profiteering happening helping companies make record profits to go along with the inflation. All higher interest rates will do is reduce investment in fixing the supply problems and thus make the supply problem worse.

We're a heavily consumerist country that imports a lot and exports little outside of resources and foods. The RBA also needs to maintain the value of the AUD and with pretty much every other country jacking up rates, the RBA has to keep up otherwise the AUD tanks which would leave us in a world of hurt with even worse inflation.

I am of the opinion that rates should have started going up around mid-2021 when the vaccine rollout was well underway and the economy was opening up. This would have helped cool the out of control housing market and perhaps prevented so many from becoming so indebted which has caused the economy as a whole to become so sensitive to IR movements. We're only at 2.35% for goodness sake.

[Impmk2]

I'm not sure pointing at average savings figures, as the RBA has been doing, is a great indicator in a country with wealth inequality at record highs. A quick google tells me that median savings are close to 1/10 of the average. There's going to be a lot of people feeling the pinch for whom those figures are little comfort.

12 minutes ago, Skyrazer said:

I am of the opinion that rates should have started going up around mid-2021 when the vaccine rollout was well underway and the economy was opening up. This would have helped cool the out of control housing market and perhaps prevented so many from becoming so indebted which has caused the economy as a whole to become so sensitive to IR movements. We're only at 2.35% for goodness sake.

I can agree with this, the property market was (still is) ridiculously out of control. Though again, it isn't just the rates going up, it's a once in a generation inflation spike, coupled with the massive lag in wage increases (if they ever eventuate at all).