GFC – is the G, still Global or now Government?

GFC – is the G, still Global or now Government?

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Much has been written and spoken about the Global Financial Crisis (GFC) where it now appears that the ‘Global’ has been superseded by Governments in crisis. In Australia it is a calamity at both Federal and State levels – (all will be explained later). In modern day speak, our elected governments are now on margin calls where debt ratios have fast exceeded income streams – political policies without pertinent planning? Rolling back budget deficits will inevitably lead to increased new taxes – but then again The Emperor (Kevin Rudd) told us that after all, he is an “economic conservative”.

At the very heart, we have the much publicised economic stoush between the Reserve Bank of Australia (RBA) and Treasury. It should also be noted that the major banks will now override RBA economic policy and collectively set their cash rates. This fundamentally diminishes the once integral role of our central bank. Watch the argy bargy in coming months although it has become blatantly obvious that the banks will outpace RBA cash rate increases – our political piggies will go screaming all the way to the (electoral) markets.

Mosman’s maritime marina captured by Tim Mooney Photography

www.timmooneyphotography.com

The Emperor – our economic Master Chef was at odds with his Apprentice Chef (Wayne Swan) – not to be confused with The Apprentice (different television stations). The Apprentice Chef was busily watering down suggestions that the RBA was at odds with Treasury over the correct economic recipe for Australia. Highlighting a nutritious recipe of economic ingredients, the Apprentice Chef described the tensions as “healthy debate”. The Emperor weighed in and advised that his fiscal stimulus was actually on Auto Chef, as it has an in-built accelerator and a decelerator to cope with shifts in the economy. Whilst nobody on the planet has ever heard of such ingenious economic rationale – one can only hope that this is not a recipe for disaster – as we all know who then foots the bill!

Our real estate markets are now Fort Fumble’s (Federal Government) other recipe for disaster as the 7.30 Report pointed out this week “Australia’s population rising steeply”. Australia’s population is up 2.1 per cent in the year to March, the greatest growth in almost 40 years. To meet demand, we have to build a minimum of 200,000 houses by Christmas next year – and that won’t happen (especially if Fort Fumble increases taxes). Although I did have a chuckle when I read yesterday that Treasury Secretary, Ken Henry, said that reduced budget surpluses due to the global financial crisis could limit the implementation of some reforms to the tax structure. No doubt the growing interest payments on his stimulus (now deficit) are now a major concern. So the Head Teller at the RBA is at loggerheads with the Head Spender over at Treasury. This was always going to happen with the stimulus progressively moving into an upwardly spiralling budget deficit.


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Macquarie Economics Research market notes this week “Understating undersupply” breaks down the mechanics of our housing market. “To understand why there is such a chronic undersupply of housing, we first consider the market for homes from the perspective of first – home buyers. As shown in the chart above, in the short term, the supply of homes is fixed. Thus, when interest rates fall and affordability improves, the demand curve shifts to the right. In our terminology, the level of actual demand rises to the level of underlying demand. In fact, as pent-up demand is unleashed, the actual demand may considerably exceed the underlying demand for a period. But with the supply fixed, in the short term, this would simply be reflected in higher house prices.”

Australia was indeed a different participant in the GFC simply because, unlike other advanced economies, we continued to ‘under – supply’ housing while other comparable countries were in over supply mode.

No better example than this week, when rental prices recorded their slowest growth rate in four years. No reason why, was offered. I believe the reason was the First Home Buyers Grant (money for honey) – now the participants face the banks and probable increased taxes to wind back Fort Fumble’s budget deficit.

 

These are the graphs that explain it all, and forecast double digit house price growth from June 2009 to June 2012. Sydney with 21 per cent growth, according to mortgage insurer QBE’s Housing Outlook.
If you are hoping for a NSW recovery (Fort Crumble) think again. Fort Crumble remains the worst performing state or territory in Australia. The rankings are – Tasmania, South Australia, Western Australia, Queensland, ACT, Northern Territory and then NSW. Surprise, surprise! In NSW in 2008 – 2009, dwelling starts collapsed to the lowest level in 56 years and the total was 43 per cent lower than the average for the last decade.

Should one simply apply economic hindsight as against economic incompetence. If you own property in NSW you will prosper, as long as you reside within 12.5 kilometres of the Sydney CBD. Beyond that point, the planning for infrastructure is archaic.

Rest assured – The Master – Chef is cooking up a storm, even though the retiring Member for Higgins, Peter Costello, announced this week that he saved Australia from global financial crisis. The Emperor (fortunately) inherited all his successful economic recipes. It will be interesting to see how The Emperor decelerates the budget deficit – which will take some cooking of the recipe books.

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Congratulations to our undefeated over – 45 Mosman rugby team, competing in the World Masters Games. The Daily Telegraph captured Peter FitzSimons in the midst of yet another of his brilliant team motivational speeches. I am not sure about the team mascot though – must have been a ring in from the Eastern Suburbs.

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Cheers ^__^

For this week’s recorded Mosman real estate, Cremorne real estate, Neutral Bay real estate and Cammeray real estate sales www.rwm.com.au/news/

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