Thanks for all the feedback on the T-Shirt designs for my forthcoming walk from Parliament House to Mt Kosciuszko. I must admit I was a bit surprised by how many people were opposed to the distorted text, but I take the point (of course, there were some who were strongly in favour of it).
And I do also want to have some fun–it isn’t all sour grapes! As someone who has done graphic design at various stages in my life, I like the look of the “fit text to curve” text–it’s the T-shirt I’d like to have in my collection. So what I’ve decided to do is to produce at least 4 of the 5 T-shirts shown below, two of which have text fitted to the curves, and three of which do not.
In one of the text-to-curve cases, the text is easily legible–unlike the earlier design with US, Japanese and Australian house prices where the text overlapped; in the second, it’s an effort to read, partly because of the coloured text–but I want at least one shirt with a full range of colours.
I’ll alternate wearing the T-shirts on different days and stages of The Walk, and I will suggest to the (so far) three people who are going to do the whole route with me that we each wear one of them at the start at Parliament House.
I have also changed to the modern and linguistically accurate spelling of Kosciuszko, and I’ve added the references to the two blogs on the front of the shirt as well as the back, following suggestions from the blog.
Each of the shirts has a graphic to tell part of the story about why we’ve had a house price bubble–debt, government manipulation with the FHVG, and time. There were one or two suggestions about doing the T-shirt with just words (and adding an answer to the question).
I’d prefer to keep some information content in them that may be relevant in a future when the bet itself is no longer remembered.
All that makes the T-shirts rather busy–which detracts from the aesthetics–but in the balance between information and appearance, I’ll bias in favour of the former.
The only shirt I’m unsure of is the last, showing mortgage debt to both household disposable incomes and GDP (the reason I have both there is that the fall in the ratio to disposable income at the end was because the impact of the government’s stimulus package and RBA rate cuts on household disposable income was actually larger than the increase in mortgage debt caused by the FHVB; that’s why that ratio fell while the mortgage debt to GDP ratio rose).
So the five designs are:
Design No. 1
Design No. 2
Design No. 3
Design No. 4
Design No. 5
March 13th, 2010 at 11:06 am
Thanks “sj”, yep it can all get pretty ‘dry’ here at times and gees are the closet promotional bloggers ‘coming out’.
I can’t appreciate your ‘journey’ sj because I don’t know it and certainly haven’t walked in your shoes, but I ‘hear’ you and appreciate the ‘spirit’ of your response.
All the best.
March 13th, 2010 at 11:22 am
To me, the t-shirts are conversation pieces.
“Ask me how” an invitation.
So after Japan to 2010 adjustment (Thanks Citydoc, Darkmatter) Number 4 for me.
March 13th, 2010 at 12:10 pm
Barnaby, how about three people with the three amigos sombreros – one in a red one-piece swimsuit with a US style lifesaving floatation device, another with a knife etc a la Crocodile Dundee (have you ever read the drivel about the boy from outback Queensland who hunts pigs – wow wee – that describes half of the blokes from my home town!), and the other a Glen Stevens “mini me”
March 13th, 2010 at 1:49 pm
Speaking of property prices
I’ve been renting in Randwick for the last year. Very central suburb, fantastic schools. The public schools in this area outperform all the very expensive eastern suburbs private schools.
The people who lived in my flat before me bought the place across the corridor exactly 1 year ago for 670k. There was an auction today for the equivalent flat upstairs (well it’s actually the only one with a view of the ocean). Today it sold at auction for, wait for it…
for 898 thousand dollars. Incidentally the Australian buyers dropped off around 710 and the rest of it was bid up by a couple of guys both with what sounded like pretty strong US accents. Maybe it makes sense to someone to pay that much money for a 3 bedroom flat but it seems pretty crazy to me…
That’s 30% in one year, the most likely way prices will drop peak to trough by 40% is if they shoot up that much first, I’m still waiting…
March 13th, 2010 at 2:55 pm
BarnabyIsRight Is Right! (#34) Great stuff.
March 13th, 2010 at 4:27 pm
TITINT,
Re: #54
“(well it’s actually the only one with a view of the ocean).”
That could account for the price difference.
March 13th, 2010 at 4:43 pm
ak,
Re: #40
From the Gittins article you linked:
“We’ve always had more opportunities for economic development than Australians have been able to afford to exploit. Investment has to be funded by saving, but Australians have never saved enough to finance all the investment projects we’d like to be getting on with, so we’ve always invited foreigners to bring their savings to Australia and participate with us in the development of our economy.”
It’s statements like this from Gittins that make me want to punch walls. I cannot remember an article from him in the past few years that did not contain contradictory logic.
What economics school does Gittins identify with?
March 13th, 2010 at 6:38 pm
Further to #46
Oh oh oh! Mr Keen Mr Keen! Can I be the clown who runs around Parliament House handing out debt candy to ‘children’, while brandishing a giant polystyrene All Day Sucker emblazoned with the words “That’s not a FHOB… THAT’S a FHOB!”…? Pick me pick me!
March 13th, 2010 at 7:01 pm
Creative idea homesforaussies #53. But I suspect it’d be a bit too esoteric for the average punter to “get” at a glance.
For that reason, I reckon the whole circus / clown / sky-high debt balloons thing is a much stronger visual theme for news grabs.
Apart from anything else, the symbolism of the clowns thing poses a (relevant, light-hearted, fun) puzzle for viewers, so is more likely to stick in the memory banks –
“Hmmmmmm… is he admitting that HE is a clown? Is he implying that his betting opponent is a clown? Or, is he saying that the Govt are clowns?”
See what I mean?
One question I must ask about the 3 amigos idea though – Are you volunteering to wear the US lifeguard’s red 1pc?
March 13th, 2010 at 8:56 pm
Nope. Nobody deserves that degree of retinal insult….
March 13th, 2010 at 9:11 pm
Sounds like a lot of you blokes missed your childhood.
I’m all for well thought out soundly structured campaigns, but this is beginning to appear like a bit of a circus with everybody running around in circles ‘looking for a bit of action or limelight’.
Just be careful not to let it get too out of hand, risking the real messgae AND credability being lost.
March 13th, 2010 at 9:25 pm
Angophera, BarnabyIsRight,
I think that the article is not too bad as he at least mentioned the problem of the foreign debt. Of course he cannot write straight that this poses a severe risk to our economy and even our sovereignty if a certain scenario unfolds. His responsibility is not to undermine the confidence.
Can somebody explain this to me – why the same article is available under 2 different titles?
“Why our foreign debt is a taboo topic”
http://www.smh.com.au/business/why-our-foreign-debt-is-a-taboo-topic-20100312-q42h.html?rand=1268397812502
“Why Barnaby Joyce is creating much ado about nothing on foreign debt”
http://www.smh.com.au/business/why-barnaby-joyce-is-creating-much-ado-about-nothing-on-foreign-debt-20100312-q4af.html
Moving forward…
A standard risk assessment procedure involves identifying risk areas, determining the severity and the probability of the risk. Then risk mitigation strategies need to be defined for these risk areas which pose a significant risk, certain risks have to be accepted and some risks avoided at any price. This procedure (not applied correctly) has already been mentioned in the context of failed house insulation program. As you are well aware the same procedure is used in the IT industry. The procedure has nothing to do with being bearish, suffering from depression or having certain extremist right-wing or left-wing political views. The standard procedure simply needs to be followed diligently. It does not guarantee that no unidentified risks will even materialise but this is not the point here.
I can write much more about risk management in the context of the IT industry but this blog is probably not the right place…
There is no reason why the same procedure should not be applied to macroeconomics or politics.
The risk of a run on the currency and the banking system is not insignificant as it has been proven recently in so many countries. The elephant in the room is the carry trade with AUD which one day will be reversed (this has already been mentioned in the article – but the reversal in 2008 didn’t last long enough to create a persistent damage).
There are some factors which may allow to mitigate some of these risks. Others cannot be mitigated at all. Certain things simply have to be avoided. That’s why I don’t ride my motorbike at 150kph – call me a coward.
The foreign debt default risk can be mitigated to some extent – if the debt is denominated in AUD.
1. A standard response may be good enough if there is a relapse of the crisis from 2008
http://www.rba.gov.au/publications/bulletin/2009/jun/2.html
2. Regardless of how much some members of this blog despise such a scenario, the Treasury + RBA can print dollars to meet the obligations of the Treasury if there is no other option left. They can also bail out banks (I haven’t said that they should – maybe they shouldn’t). This has nothing to do with Chartalism.
However the component of the foreign debt denominated in foreign currencies poses a bigger problem as we cannot print USD, JPY, EUR or GBP and we are addicted to the import from the US, China and Japan, not to mention imported oil.
Hedging may not help much if another global financial system instability develops.
This (very optimistic) article is interesting as it contains some data:
http://www.rba.gov.au/speeches/2009/sp-ag-101209.html
In my opinion borrowing overseas in foreign currencies should simply be avoided even if we need to consume a bit less, work a bit harder and have a bit higher prices. But the risk of systemic failure simply doesn’t exist in the world of equilibriums… Only one logic still applies here – the optimistic logic of eternal growth in the lucky country which always have had a current account deficit. “We will never have to repay any debt – just roll over and pay the interests which will always be low. If we don’t talk about the risks there is no risk at all.”
However…
I remember perfectly well what happened when Poland defaulted on the foreign debt in the 1980-ties. This was the nail in the coffin of the already ailing communist system. Actually the only country in the region which repaid the foreign debt was Romania. The country was completely ruined and the dictator was executed during a bloody revolution.
A very similar scenario was recently not uncommon in Latin America. So it was not only communism. It was debt. This stuff happens even in highly developed countries like Iceland or Ireland…
So there is a possibility of a different scenario. Not only the interests need to be paid but also the principal has to be repaid and then the size does matter. Totally different logic then applies. Are we solvent? Or do we need to handle over our mining sector and mineral resources to foreign investors to repay the debt?
Ross Gittins and the others should not downplay the foreign debt risk. I agree that the discussion about the public debt, foreign debt and risks posed by the bursting housing bubble should ideally be free of emotionally charged statements. Not all the risks have to materialise but some of them are quite likely. I understand that in the current climate of ignorance and denial the message must be spoken loudly. If Barnaby is the only politician willing to speak – good on him.
(I may not share some of his views and his party shared some responsibility for the increase of the foreign debt during the John Howard era. But he is the only one who is not blind or doesn’t pretend to be blind…).
What we have to have is an open discussion about these problems. We must have a risk assessment done, we must stop fooling ourselves. Barnaby may have enough resources to do it properly for Australia – this should not be left to bloggers. So what is our contingency plan if the export to China collapses? What is our plan if oil goes up to USD400? What will we do with the unemployed construction workers when house prices go down? Another FHOG? More house insulation? More foreign speculators?
Let’s not waste too much time on organising street parades (but I like the idea of popping balloons very much…). We need to pin down the overlords of debts with strong arguments. When the housing bubble bursts an alternative plan how to clean up the mess must be ready. Both Austrian and neo-Marxist ideologies won’t help us at all – they will only make things much worse. The problem is not that we are not printing enough money so that the whole country is not covered with concrete by construction workers. The problem is not that we don’t have gold money and free banking.
The problem is debt, de-industrialisation and the imbalances in the society.
The plan how to clean up the mess must be realistic and the new system should not allow for a relapse. We also must understand the environmental constraints and do not fool ourselves with the eternal GDP growth.
March 13th, 2010 at 9:46 pm
ak
Well said in every way. For every disaster there lies a remedy to make the future better and to avoid such a disaster again.
March 14th, 2010 at 12:14 am
Indeed, well said ak. Food for thought.
Just FWIW, I wasn’t in any way suggesting street parades or what have you. Merely throwing around ideas for simple, symbolic themes to help make Steve’s April 15 Keenwalk launch interesting, relevant, and above all, memorable for both the media and (more importantly) the general public. Really just hoping to inspire Steve and others with a bit of fun creative thinking for that rather important PR side of things.
March 14th, 2010 at 9:29 am
angophera asked “What economics school does Gittins identify with?”
Gittins seems to align himself with whatever is the current consensus. A few years ago it was we’ve got all this foreign and other debt, but people are obviously seeing investment opportunities, so it is OK, even though most of the debt is property speculation. Last year, he started to run the line that maybe it is a worry, when it was obvious that debt was a problem elsewhere. Now we’re in a another asset bubble and it all looks fine again.
March 14th, 2010 at 12:36 pm
ak re #62,
“However the component of the foreign debt denominated in foreign currencies poses a bigger problem as we cannot print USD, JPY, EUR or GBP and we are addicted to the import from the US, China and Japan, not to mention imported oil.”
Interesting you mention this. Doing some digging in the RBA stats this a.m., spreadsheet H4 says (at Dec 2009) Foreign Liabilities of $708.1bn (Equity) and $1243.6bn (Debt), of which $736.6bn is in Foreign currencies.
Forgive my layman’s ignorance, but is it correct of me to presume that the $736.6bn is the foreign currency component of the ‘Debt’ liability? Or, is it the foreign currency component of the combination Equity + Debt.. with no way of knowing how much in each category respectively?
FWIW, I’d appreciate any insights (from anyone) on this article I wrote up today – http://barnabyisright.com/resources-articles/who-owns-our-debt/
Is there anywhere else I can look to find exact details of who owns how much of our public debt?
March 14th, 2010 at 2:20 pm
http://money.ninemsn.com.au/article.aspx?id=1025564
Recent figures show the lower end of the housing market is dropping off big time.
With the additional $30-$50K capital gains gifted to home vendors courtesy of our mortgaged stressed first home buyers and all that additional leverage because of it, this will only leave the more expensive, lower volume sales of our more up-market properties to drive the results of the Real Estate Industry’s ‘Hedonic Index’.
Such results when punched into the ‘Hedonic”‘ computer can only conclude the biggest price rise in property ever recorded over the next few months as this mathematically flawed formulae will be devoid of the lower priced, higher volume data.
No doubt the property spruikers will go into overdrive because of it, RBA will increase interest rates and our dollar will further climb and wipe out more of our manufacturers who export oversees.
However, when the reverse occurs, and no doubt it will, I’m certain we will see the biggest crash in history.
March 14th, 2010 at 4:11 pm
BarnabyIsRight@66
The foreign debt details can be found at the following.
http://www.aph.gov.au/Library/pubs/rp/2008-09/09rp30.htm#_Toc228933525
Note that only about 50% of the debt is written in Australian dollars meaning that the banks are taking the exchange rate risk on the rest.
I find it inexplicable that the various MSM “economists” claim that the foreign debt is not a worry when it is approaching 100% GDP and has been growing faster that the GDP for at least 35 years.
I also find it inexplicable when they claim that the banks borrow foreign currency for the purpose of home lending. You need AUD to buy houses in Australia not US dollars. The AUDs that they loan out as the “feed deposits” to their credit creation cycle are the ones that they are left with when they are forced to borrow foreign currency for currency conversion purposes. Conversion of currency used to to fund our current account deficit and import of consumer goods, not for their home loans or “national development”.
It is strange that this process is being backed up by the government without a whimper from the opposition (with the notable exception of Barnaby). This deficit is ballooning as we enter the last phases of our de-industrialisation. When the banks and the government run out of credibility and perceived credit worthiness (as they have with many of us on this blog) third world here we come.
March 14th, 2010 at 4:46 pm
Brightspark1, thanks for that. What I’m actually hunting for though viz. my current article (bit of a whack at Gittins) is some kind of breakdown of “non-resident” holdings of our public debt, rather than the Foreign Debt.
From statements like this… “public debt – the amount the federal government owes (mainly to Australians)” … one wonders whether Gittins actually double checks anything for himself, or whether he just parrots out the accepted ‘wisdom’.
March 14th, 2010 at 5:32 pm
All,
Uh oh!
“Chinese PPI Running At Red-Hot 5.4%”
http://www.businessinsider.com/chinese-ppi-running-at-red-hot-54-2010-3
Shanghai Daily:
“The producer price index (PPI), a major measure of inflation at the wholesale level, rose 5.4 percent in February from a year earlier, the National Bureau of Statistics (NBS) announced today.
It quickened from 4.3 percent in January this year, and 1.7 percent in December 2009, when the figure posted the first monthly rise since December 2008.”
March 14th, 2010 at 7:39 pm
“Note that only about 50% of the debt is written in Australian dollars meaning that the banks are taking the exchange rate risk on the rest.”
BrightSpark1,
I’ve mentioned this before a few times but here goes again. I would not be surprised if it was in response to the same comment that you had made before.
Keep in context that I’ve worked directly with wholesale Australian bank funding. Your statement is an easy enough to make misperception. The FX risk is on overseas funds is always swapped back to 3m AUD risk, simple as that. As far as the banks are concerned there is no FX risk on the funding portfolio. There is basis risk which is really only relevant for rolling over the funds (which happens continuously) but that’s not exactly FX risk, and it is also managed.
Think of it from another way – do you really think Australian banks would take on such a huge FX risk on their books? A %10 swing in the FX rate would wipe out the entire profit.
You’re welcome in advance, maybe I am being a little rude but I hope it makes you remember this fact.
March 14th, 2010 at 9:42 pm
Design 2 only serves to highlight the impact of the GST on house prices. The cost of new homes increased by 10% overnight and having consideration for the PRICE SIGNAL sent to the broader property market its little wonder that prices exploded regardless of the fact that existing home sales dont attract the GST.
The issue of the impact of the GST on housing was widely discussed at the time. Home buyers would simply buy up existing housing stock until such a time as prices reached parity with the newly taxed new home and as a result new home contruction would fall of a cliff and this is exactly what happened.
The Howard government simply brought in the FHOG to save its own skin and when combined with an already undersupplied market and record low interest rates ( US fed rate 1% ) the whole market exploded. Builders having laid off workers for 2 years were flooded with orders and became price makers not price takers.
In 2004 I can distinctly remember John Howard confronted with the question of home affordability saying ” well, I have never heard anybody complaining that the value of there house is too high “. The baby boomers ( most of them pre-GST home owners ) thought the guy was some sort of economic genius.
When the cost of a new home in the outer suburbs increased by 250% over decade there hardiplank cottage a dozen suburds closer to the CBD went along for the ride too.
Design 4 I dont find Japan a meaningfull comparison to any country given its own unique problems. Negative population growth and rapidly ageing population. Collapsing consumer demand ( has been for 20 years ). A property bubble that has no precedent ( even by todays standards ) your graph implies parity in 1986 when it was already overinflated. A totally dysfunctional banking sector ( the banks still have’nt come clean on bad loans which led to the collapse of interbank lending ).
The US has its own unique features also i.e they did’nt increase the minimum wage for 25 years. To have a subprime mortgage crisis you need subprime borrowers and the americans simply did an outstanding job at creating alot of them.
Design 3 is the concern about the increase in private debt from 1990 not offset by the increase in savings ( compulsory superannuation ) both of which have increased at the same exponential rate.
March 16th, 2010 at 2:09 pm
TruthIsThereIsNoTruth
We will have to agree to disagree here. The exchange risk must be taken on by someone we need to ask what happens if the exchange rate falls by a lot more than 10%, say to labour value parity with China about a 90% fall, would the swaps be honoured? Would the issuer of the swaps be able to do so or would they collapse.
Yes I do really think Australian banks have a huge FX risk on their books. With the exponentially increasing foreign debt which has been accumulating without a break for 50 years, the day will come when the lenders will realise (just as do lenders to an insolvent company) that they are throwing good money after bad. The government can put off the day by borrowing for the banks (as they have commenced to do) but the exponential increase will eventually overwhelm them.
March 17th, 2010 at 11:22 am
BrightSpark1,
What you are talking about in the first paragraph is actually credit risk and is mitigated by swap collateral, which is a bit like the margin account in futures contracts. Furthermore the counterparties to the swaps are market makers not speculators so the risk is also managed on their side. At the end the risk is borne by speculators who make up the liquidity needed for the market makers to be able to manage their risks.
I didn’t know the government was borrowing for the banks. Here in Australia? Are you talking about the government guarantee on wholesale funds?
I agree on one thing, it would be nice if such a wealthy country like Australia saved money instead of spending it. Australia exports the whole periodic table and we are spending it all and some more, borrowing from the future of our children.