Both Are a Plague on Our Houses

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Today’s blog was pub­lished as a fea­ture “A lose-lose elec­tion for home buy­ers” by The Age Busi­ness. Click here to down­load this post as a PDF file (with charts).

Both Lib­er­al and Labor hous­ing poli­cies will make Aus­trali­a’s debt and hous­ing afford­abil­i­ty crises worse. The only dif­fer­ence between the two is how much dam­age they will do.Both par­ties have promised tax-advan­taged sav­ings sys­tems that will enable First Home Buy­ers to accu­mu­late larg­er deposits. This will undoubt­ed­ly help them com­pete with oth­er buy­ers in the hous­ing mar­ket, but a lack of com­pe­ti­tion amongst buy­ers isn’t the prob­lem.

Deflated changes in Wages and Debt: 7.30 Report Data

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Tables like the ones below take my breath away when I see them for the first time–because the sto­ry they tell is worse than any I would have dared make up. As I not­ed in the inter­view with Ker­ry O’Brien on the 7.30 Report, real wages have increased since 1990, and since Aus­trali­a’s last elec­tion in late 2004. How­ev­er, mort­gage debt has increased by far more.

Data for 7.30 Report Interview coming soon…

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I pro­vid­ed a num­ber of com­par­isons of real wages, mort­gage pay­ments, inter­est rates and the like in my inter­view on the 7.30 Report this evening. I’ll post a table con­tain­ing those data by tomor­row morn­ing.

If you’re a new vis­i­tor and would like to receive my Debt­watch Report, which Ker­ry men­tioned in tonight’s inter­view, please click here to send me an email about it. Or you could sign up for the blog, after which I will add you to the sub­scribers list (there have been some has­sles report­ed by some users on this front by the way, so if that hap­pens to you, please fol­low the First Rule of computers–“If at first you don’t suc­ceed, give up”–and send me an email instead).

Paul Woolley Financial Market Dysfunctionality Conference

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I’m one of the pre­sen­ters at this con­fer­ence at UTS today. The con­fer­ence web­site has a link to all the papers (includ­ing mine). As usu­al, I’ve done an “all singing, all danc­ing” Pow­er­point pre­sen­ta­tion that has a few addi­tion­al details to it.

The Paul Wool­ley Cen­tre is a very use­ful devel­op­ment, giv­en the bias in aca­d­e­m­ic finance towards the propo­si­tion that finance mar­kets are actu­al­ly hyper-func­tion­al (“effi­cient” in the jar­gon, defined in a way that cor­re­ponds to “prophet­ic” in ordi­nary Eng­lish).

Paul Wool­ley is giv­ing a pub­lic lec­ture tonight “Is the Finan­cial Sec­tor Dys­func­tion­al”, at 6.15pm in Uni­ver­si­ty Hall at UTS–in the Sci­ence Build­ing, 745 Har­ris Street Ulti­mo (diag­o­nal­ly oppo­site the ABC build­ing). All are wel­come.

The Political Debt Cycle

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Both par­ties will make much of their eco­nom­ic man­age­ment cre­den­tials in this elec­tion cam­paign.

Many Aus­tralians, on the oth­er hand, seem con­vinced that the econ­o­my would do as well regard­less of which par­ty were in pow­er.

The aver­age punter has it right: luck, rather than skill, has deter­mined which gov­ern­ments in ret­ro­spect came up smelling like ros­es in the eco­nom­ic man­age­ment stakes, and which instead smelt like manure.

By far the biggest deter­mi­nant of polit­i­cal luck is what was hap­pen­ing to pri­vate debt while any giv­en gov­ern­ment was in pow­er. If debt was ris­ing, then the gov­ern­ment looked good; if it was falling, then the gov­ern­ment looked bad.

And Deeper in Debt… Launch next Tuesday 12pm

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Dear All,

Below is the press release from the Cen­tre for Pol­i­cy Devel­op­ment for the launch of my “mini-book” on debt. Please pass the news on, and I hope to meet some of you at the launch.

You load six­teen tons, and what do you get?

Anoth­er day old­er and deep­er in debt”
(Mer­le Travis, 1946)

Aus­tralia has been on a 45 year pri­vate debt binge that has now reached unsus­tain­able lev­els. It’s been going on so long that our entire sys­tem is becom­ing reliant on it: we almost can’t afford to stop bor­row­ing.

DebtWatch No 11 September 2007: Why didn’t they see it coming?

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I expect–and hope–that the tenor of dis­cus­sion at this mon­th’s RBA Board meet­ing will be very dif­fer­ent to last mon­th’s. In August, I imag­ine, the com­mu­ni­ty mem­bers of the Board lis­tened sage­ly as the RBA’s econ­o­mists explained why the risk of future infla­tion had risen, why this jus­ti­fied a “pre-emp­tive strike” of rais­ing inter­est rates, and then reluc­tant­ly agreed to the rise.

I hope that this mon­th’s dis­cus­sion is more along the lines of “if you guys are the mon­ey experts, how come you did­n’t see it coming?”–it, of course, being the unfold­ing col­lapse of the US hous­ing mar­ket, and the result­ing extreme tur­moil on finan­cial mar­kets.

Link to extended 7.30 Report Interview

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The 7.30 Report is mak­ing good use of the web with its extend­ed inter­view fea­ture. These are the edit­ed high­lights of the major inter­views it does for sto­ries, at best ten per cent of which sees the light of day in the final sto­ry.

Here is the link to the extend­ed inter­view with me for their sto­ry on preda­to­ry lend­ing and the Cooks case.

7.30 Report on “American mortgage shock waves hit Australia”

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Those of you who missed last night’s 7.30 Report (like myself–I was play­ing ten­nis at the time!) should check the link below:

 Amer­i­can mort­gage shock waves hit Aus­tralia

Apolo­gies again for a tardy update cycle on this blog, but as you can imag­ine, I’m busy as hell right now. When the dust settles–in ear­ly October–I hope to bring every­thing up to date.

I will also be releas­ing a mini-book on debt for the Cen­tre for Pol­i­cy Devel­op­ment on Sep­tem­ber 18th. Venue TBA, but please con­tact the CPD if you’d like to attend. The work­ing title is And Deep­er in Debt…