I stumbled upon your blog by accident a month or so ago and have found myself coming back to it at least a few times every week. You have become my favorite pick me up in the middle of a hectic work day. I love your writing and your thoughts — both ar…

I Googled for something completely different, but found your page…and have to say thanks. nice read….

I do think your right here, i am going to bookmark your site to see if other people have different views…

“One of the causes of the Revolutionary Wars was the English put tacks in their tea. Also, the colonists would send their pacels through the post without stamps. During the War, Red Coats and Raul Revere was throwing balls over stone walls. The dogs were barking and the peacocks crowing. Finally, the colonists won the War and no longer had to pay for taxis.”
http://www.leo.org/information/freizeit/fun/history.html

Many more delicious quotes there. I do wonder about the authenticity of them, but I’ve read some pretty awful essays in my time. Besides, they’re a good chuckle.

On the data sources, all Australian data comes from the RBA monthly statistical Bulletin–which the good folk at the RBA statistical service now provide in a single ZIP file, after a request from me a few months ago.

I then import the data into my favourite analytic program (Mathcad) and then produce the ratios shown in the charts.

Unfortunately I can’t footnote the data automatically in each chart–that’s an option that Mathcad doesn’t support yet–but I will make up a table at some stage explaining how each ratio is derived; and I’ll also provide some numbering of charts (I’ve omitted that to make it easier for readers to cut and paste the graphics into their own commentaries).

You’re right that those two graphs are repetitive–it’s a cut and paste problem. Mathcad generates the graphs in PNG format and gives them randomly assigned names; I have to edit them, and it appears I copied the same graph twice. Hopefully this problem can be overcome in future releases of the program!

The new charts page is great, and while it saves me having to manually create every chart I need for an illustration, I’m wondering whether you could please add a full list of the data sources used for each chart? Perhaps just as a footnote? I’m particularly curious as to the origin of Household Disposable Income. Sorry if this has been explained already. I wonder whether the Household Debt Servicing Burden would be better as “Per cent of Household Disposable Income” where it is currently “Per cent of GDP” (Chart 14 and Chart 19 – there appears to be a repetition of the household charts)?

I’m staggered to see that our current rate of private debt accumulation as a proportion of GDP is at a record level according to the chart. Out of curiosity does anybody know if this rate (>20% per annum) is the all-time record? Gosh, that really would be something special, wouldn’t it!

You just caught me as I was belatedly updating the charts page!

Yes, both China and the (Japan) carry trade are behind the high value of the dollar.

As for what happens next… I think that the US housing downturn will turn ugly, and affect Chinese exports to the USA and in turn us. Whether that will bring the Chinese boom in general to a halt, I don’t know. I suspect it will continue on, because just like Japan’s long boom, China’s is fuelled to a large degree domestically–even though export demand played a strong role in starting it, and maintains the balance of trade surplus.

However, the US dollar is likely to plunge when their economy goes into recession; if China’s boom ends at the same time, then our currency will fall with the USA’s (and probably more steeply); if the China boom continues on at a lower level, our currency is likely to hold up compared to the US.

I also expect the RBA to go into interest rate cutting mode. That will of course affect the hedge gambling on our currency, but if the US Federal Reserve is doing the same thing, that will attenuate the devaluing impact from that speculative source.

Whatever though, I think we’re in for extreme global interest rate and exchange rate volatility in the next few years. When it all settles down once more, I think it will in hindsight be seen as marking the end of US economic hegemony and the beginning of China’s.

I stumbled onto your work from iTulip and have spent the last couple of days reading it all instead of doing my work

So the exponential growth of debt and asset values cannot continue forever, that’s a given, and either 1) asset value depreciation occurs (and debt default occurs) or 2) commodity prices increase or 3) a combination of the two eventuates. This all makes sense. Additionally, we have a situation where debt to disposable income levels are historically huge, and debt to GDP is also historically huge.

But the AUD is doing very well, interestingly… Carry trade? Chinese demand for raw materials? Global demand for something other than US treasuries heading to AUD (and NZD)?

Economics can be considered locally, but we’re in a complex, interconnected global system - a fact which we might ignore at our peril. So, getting to the point, a discontinuation of the current situation is possible (likely) to be felt elsewhere, or even originate elsewhere and have effect here. I’m interested in what you might think is a likely outcome for the AUD in the event of such a discontinuation.

My own thought is that interest rates are likely to drop drop drop as the RBA tries to keep things moving, but that this would lead to a fairly decent drop in the relative value of the AUD, similar to what was seen during the Asian meltdown a few years back. And, that this outcome is more likely than the alternative as the AUD is still a minor currency compared to USD, JPY, EUR and GBP.

What do you think?

They’re straight from the RBA Statistical Bulletin, which in turn relies ABS data for the GDP information. Debt is measured and published monthly (by the RBA) and I believe is “full information”; GDP is measured quarterly by the ABS on a survey basis.

Debt values are of accumulated debt; GDP, HDY etc. are quarterly flow figures that are summed on a 4 quarter moving average basis.

The interest servicing costs are numbers I derive by multiplying relevant interest rates by relevant debt measures, and then dividing by interpolated GDP, HDY figures, etc. My figures differ slightly from the RBA’s own estimates that they are now publishing as sheet B21Hist.xls, but not so much that I’m out of the ball park.

From that sheet, the RBA gave the Debt to disposable income ratio as 34.8% in 1977, versus 157.8% today.

Repayments might well be of that scale, but that depends on the aggregate maturity of loans, and I don’t have that data.

It is hard to believe, isn’t it? But that’s what’s happened, and all under the noses of the financial authorities and the government.