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TOPIC: You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison

You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 13 Feb 2015 10:29 #1

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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison

Last week, the central bank did precisely that, in belated recognition of the income recession that has struck. Gross domestic income (GDI) fell by 0.3% in the June quarter of 2014, followed by a further 0.4% slump in the September quarter.

The RBA has cut its 2015 GDP growth estimate as well, by 0.25%, predicting a 1.75%–2.75% range.

In 2012, I predicted an Australian recession, albeit as a “delayed tsunami” effect of the global financial crisis of 2008–12. However, some bank economists since late last year have declared there is a recession in the making in 2015.

Welcome to the post-industrial economy. Fortress Australia is long gone; the automotive industry is evanescing before our eyes; while textiles, footwear and clothing barely exist on these shores.

Steel, once the linchpin of Australia’s heavy industries, is a shadow of its former self. Battered by fierce competition from China and India, Australian steel tonnage output didn’t even crack the top 20 world rankings in 2013.

As everyone knows, the main game in Western Australia and Queensland is mining, mining and mining. Meanwhile, the sucker-fish, located predominantly in Sydney and Melbourne, comprising the finance, insurance and real estate (FIRE) industries, gorge themselves on the vast swathes of export dollars produced by coal and iron ore.

But for how long?

FROM HERO TO ZERO?

Throughout the last 12 years, Australia has produced world-beating results. Australia’s GDP doubled between 2007 and 2013. It is the world’s 12th-ranked economy, a remarkable feat for a population comprising a mere 24 million people (and 20.7 million cats, apparently). Nationally, unemployment is low. In 2013 and 2014, Australians were the world’s richest, thanks to the property boom, with every man, woman and child worth an average of $A258,000.

And oil prices are so low that they’re better than any tax cut any miserly government could ever give you in its wildest dreams.

Everything’s going swimmingly, isn’t it? Where’s the party?

But Australia is also facing an income recession. Real household disposable income is falling, exacerbated by the tumbling Australian dollar. Ominously, the world may be about to experience a Great Deflation.

Agriculture and manufacturing – the mainstays of Australian employment from federation until the 1990s – have been displaced by service sector industries. These largely feed off the revenues of a resources sector whose exports dwarf all others. But even iron ore export prices have halved in the past year, and there could be worse to come. There is not much point in Australia boosting its iron ore output if no one wants to buy it. Just ask the Soviets what they did with their surplus steel. Komrade (they dumped it in the west, to save you looking it up).

Unfortunately for us, we like to party hard and we didn’t invest all the enormous benefits of the boom in the terms of trade during the 2000s. We spent it on tax breaks. Which we then spent. On property. And Chinese consumer goods.

And speaking of being dwarfed, Australia’s Future Fund – designed to fund public service pensions and the odd politician – is paltry by comparison with Norway’s, which ranks third in the world with almost US$1 trillion in assets.

By contrast, Australia ranks 13th globally (as it does in most things, except cricket), with a mere A$109 billion at its disposal. Or about 2.1 years of Commonwealth deficits, roughly.

This week, China reported its inflation figures and the numbers are troubling. Year-on-year domestic demand has weakened considerably. Moreover, in January, the US economy saw its consumer-price index (CPI) fall to its lowest level since bottoming out during the Great Recession of 2009.

Deflation means prices are down. One type of deflation can be positive, as it emerges from gains in technology, efficiency and scale, coupled with cheaper labour and energy.

But too much of the wrong kind of deflation – where inflation is negative – leads to long-term unemployment, reduced demand and low, zero or negative growth. Exhibit A: Japan. Two decades of deflation.

The main reason price deflation is occurring is due to weak demand. This is due partly to a reduction in the gross money supply, and partly as a by-product of lower wages.

Money supply evaporated – temporarily – as credit markets froze in 2008. As governments poured liquidity back into financial markets in 2008–09, credit cautiously returned, but growth was non-existent or hesitant throughout most of the developed world. Millions of jobs vanished during the Great Recession, and the jobs that eventually returned paid much less than they had just a few years earlier.

In fact, the US has reportedly regained all the jobs it lost during the recession. With one hitch: these jobs pay 23% less.

Now, this scenario has some resonance in Australia. The 2007–13 period saw Australian wages rise much faster than their OECD counterparts. But in 2014, wages hit a brick wall, barely matching inflation. Yes, even miners saw lower wage growth. And, judging by their trade magazines, neither white-collar nor blue-collar resources industry workers are too optimistic about the future.

OH EUROZONE CRISIS: WE’VE MISSED YOU MOST OF ALL

If you thought the IMF and European Central Bank (ECB) had muddled successfully through the 2011–12 eurozone crisis, think again. Exhibit B: The ECB’s January 2015 quantitative easing program, injecting €60 billion per month into the eurozone economy.

Sounds impressive. But it isn’t. What it will do is simply refinance the banking sector, which is now beginning to pay back the three-year Longer-Term Refinancing Operation (LTRO) funds it borrowed during the crisis. Over 500 eurozone banks accepted more than €1 trillion during the crisis.

Now the ECB’s LTROs are maturing. As of January 2015, banks were due to repay up to €196 billion on LTROs by the end of February. But they still owe nearly €900 billion.

Consequently, the ECB’s QE program will only keep liquidity flowing back to the banking sector, as it replaces old LTROs with new QE.

The elephant in the room is not Greece. It’s inflation – or lack of it, to be precise. Eurozone inflation is running at -0.2%, a far cry from its 2% target. Not to put too fine a point on it, but -0.2% is not inflation. I’ve met inflation. And that’s not inflation.

The clear objective of the ECB’s €1.2 trillion QE program is to reflate the eurozone economies and ensure sufficient bank liquidity. But it also has a secondary objective: currency manipulation. 18 months of the Federal Reserve’s QE 3, which concluded in late 2014, injected $US85 billion per month into the American economy, pumping up its GDP growth figures, manipulating its currency and, coincidentally, depreciating China’s massive stash of US bonds.

How has the ECB responded to this? By engaging in its own currency manipulation scheme. This has sent the euro below US$1.15, a far cry from its US$1.45 rate of mid-2011. With the euro closer to parity with the US dollar, eurozone global exports can at least remain competitive.

Why does any of this matter to Australia? First, the EU is Australia’s largest source of foreign direct investment. Second, the currency power-play between New York, Tokyo and Frankfurt has hurt Australian productivity and exports, even as the Reserve Bank tries to play this poker game as well. Although the dizzy heights of an above-parity Australian dollar are a long-forgotten dream, currency depreciation in Europe, North America and Asia has contributed to the loss of Australian industries, such as the automotive sector. Equally, the Australian dollar, even at US$0.70, is not competitive enough to substitute for a lack of productivity.

The ducks are all lined up. A perfect storm approaches.

Welcome to capitalism. We hope you enjoy your stay.

The ConversationREMY DAVISON is Jean Monnet Chair in Politics and Economics at Monash University.

This article was originally published on The Conversation.
I remember the good old days, when 90+ year olds in nursing homes lived forever. Darn this pesky virus.

1365 = 1

1.1365 = 1,283,305,580,313,352
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 15 Feb 2015 06:05 #2

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The same things with varying themes are taking place globally,and central banks manipulated interest rates to prop up things until it blows out.The talk of recession and deflation are buzzwords used until inflation and economic collapse occirs.
The switch to service-based economies is also telling.The middle class gets wiped out eventually.Super rich and lower class remain.

Anyway--
Australia to suffer 'biggest property collapse since Great Depression'

The expert who predicted the global financial crisis has a dire warning for Australia's property markets.


Melbourne, Sydney, Brisbane and Perth are on the verge of the most violent property collapse since the great depression, economist guru Harry Dent has said.

Speaking exclusively with 7News, the author, economist and property guru says as an entire country, Australia is the most over-valued real estate in the developed world.

“I think it's probably going to go down at least 30 percent to kind of take off the bubble, [and] I think 50 percent down the road is even more likely,” Mr Dent said.

After London, Melbourne and Sydney are the most expensive cities in the world when housing prices are compared to earnings.



On average, Australians are shelling out more than ten times their annual income on a home.

“[Over] the next three to six years, we’re going to have a bigger GFC, we're going to have the next Great Depression,” Mr Dent said.

“I think the most dangerous years are 2014 and 2015,” he said.

The American, who begins his Secure the Future speaking tour this week, was lambasted when he predicted the collapse of the Japanese economy when most economists said it would overtake the US as the biggest economy in the world.



He also accurately predicted the timing and severity of the 2008 Global Financial Crisis.

“An everyday person with a million dollar mortgage is going to go underwater,” Mr Dent said.

A lot of people are going to have a house worth less than their mortgage, and they apparently will not be able to refinance.

Leading analyst from Residex John Edwards disagrees with Harry Dent, and says if anything, our market is getting stronger.

Dent says his predictions are based on long-terms statistics on how Australians live and spend, and data from governments worldwide.

He says the key is to look to China, where almost a quarter of all new properties are sitting empty, and that cities like Shanghai could lose 85 per cent of their value.

“All it takes is something to burst the bubble,” he said.

“If China blows it's going to have a much bigger impact than the 2008 GFC.”

au.news.yahoo.com/a/21327193/australia-to-suffer-biggest-property-collapse-since-great-depression/
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 15 Feb 2015 07:22 #3

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I remember reading that article, its about a year old.

Certainly in some places house prices have taken a tumble, many houses can only sell for 2/3 of what they would have pre GFC already... id say that trend will continue especially in the middle and lower class houses that arent in affluent areas, ie houses under 1 mill.

The flip side of this though is stronger prices in some areas, often led by investors, not owner occupiers. Though that is occuring only in certain areas, which is why the OZ fed has mentioned not giving loans to property investors in certain cities, so different rules for different places. That hasnt happened but its been discussed.

And out of the capital cities, some rural areas property market will collapse, sellers wont be able to sell at all or will have to sell for much less than the cost of building, ie you will see 50k selling prices and empty houses eventually in rural areas.

Then add to that the fact that the australian dollar has gone from strong 90c US and beyond, to low 70 c US now, means real wealth that was tied up in property has fallen further vs USD.
I remember the good old days, when 90+ year olds in nursing homes lived forever. Darn this pesky virus.

1365 = 1

1.1365 = 1,283,305,580,313,352
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 15 Feb 2015 08:04 #4

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novum wrote
The flip side of this though is stronger prices in some areas, often led by investors, not owner occupiers.

Officially,the shackles are off ---
“This is good news for Australian families and it’s good news for Australian business,” Mr Hockey told reporters in Canberra. “The government is working hard to take the pressure off interest rates by keeping inflation low.”

Mr Hockey said combined with a fall in petrol prices Australians had received the equivalent of a three-quarter of one per cent cut in interest rates.

The treasurer said the Reserve Bank had “more room to move”but that this latest cut would lift business and consumer confidence.

“The shackles are off the Australian economy,” he said.

“I say to Australian business ... go out there, have a go, employ more Australians because the costs of doing business are down.” The treasurer said he expected the banks to pass on the cut immediately across the credit spectrum and not just limit it to home loans.

An International Monetary Fund report due out within days would show global economic headwinds remain of concern, he said.
www.news.com.au/finance/economy/rba-cuts-interest-rate-to-historic-low-of-225-per-cent/story-e6frfmn0-1227206366096
The cut was the first from the central bank in 18 months and was widely expected by financial markets.

In reaction to the move, the benchmark S&P/ASX 200 hit a seven-year high, up 1.3%, while the Australian dollar slumped to a six-year low of $0.7650.

The RBA is the latest central bank to loosen monetary policy to boost growth amid falling oil and commodity prices.

It follows China, Canada, Singapore, Korea and India that have all cut interest rates in recent months.

Slowing economy



Australia is dealing with an economic slowdown, largely due to a drop off in mining investment, which had been a driver of the resource-rich economy
www.bbc.com/news/business-31107132

Now don't go blaming Americans for this one. :chuckle:
Last Edit: 15 Feb 2015 08:06 by zax.
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 15 Feb 2015 08:21 #5

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joe hookie wrote:
“I say to Australian business ... go out there, have a go, employ more Australians because the costs of doing business are down.”



:wissl:

joe hookie wrote:
The treasurer said the Reserve Bank had “more room to move” but that this latest cut would lift business and consumer confidence.

Like the last 11 rate cuts did? :ponda: :chuckle:
I remember the good old days, when 90+ year olds in nursing homes lived forever. Darn this pesky virus.

1365 = 1

1.1365 = 1,283,305,580,313,352
Last Edit: 15 Feb 2015 08:26 by novum.
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 15 Feb 2015 08:32 #6

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Who knows.... Dusty Muff Old Hag could be an employee at the Fed Reserve. :O

By the way,change the location of the next meeting.She's determined to strom it. :hahano:
Originally Posted by Dusty
And I live in Australia. I don't care what math you have done. You clearly know nothing of Australia or the indigenous people or the person who built the roads in the desert. His name is Len Beadell. Google it!

Goodbye sir! You are obviously too good for this site
www.davidicke.com/forum/showpost.php?p=1062408293&postcount=1348

:wissl:
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 15 Feb 2015 21:59 #7

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You know Australia’s in trouble when....

That would have been a more fun title....

They name their most famous harbour "Sidney"



Their primary contributions to music are INXS Rolf Harris and the Bee Gees, oh not forgetting Kylie, I still make a few shekels off her every year....
To understand who rules over you look to whom you tube can't criticise

The media isn't there to cover the news
It's there to cover the news up

All establishment lies pass through three stages
First, they are accepted as being self evident
Second, they are exposed by diligent research
Third, they are enforced

"Communism is the bloodiest, most difficult and the most terrible way from capitalism to capitalism" from Under the Sign of the Scorpion by Juri Lina
Last Edit: 15 Feb 2015 22:00 by rodin.
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 15 Feb 2015 22:43 #8

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rodin wrote:
You know Australia’s in trouble when....

Male Kangaroos get circumcised at birth.
The resident shill announced
blue_tackler wrote:
please make my profile inactive, I no longer want to have any connection to this forum.

yet he is trolling further. :facepalm:

blue_tackler wrote:
the lice are only going to jump onto other typhus victim

Prime example of holocaustianity mental issues, clinically insane, and utterly ill informed, a danger to public health if this dude was working for CDC.
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 15 Feb 2015 23:02 #9

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I wouldn't surprised if Australia's political and economic system has been significantly meddled with such that it has gone from being in a position to repay all its government debt 10 years ago until now where it's approaching 500 billion with deficits of $40bn to $50bn a year.

The Jew controlled West couldn't have a nation being financially strong enough that it could break free of the shackles of the BIS, OECD and the IMF.
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 22 Feb 2015 08:48 #10

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What the Interest Rate Cut Means for the Australian Stock Market
Right now, the Reserve Bank of Australia (RBA) is doing just that. As an investor, the horse is you…and RBA Governor Glenn Stevens is the wrangler.

By cutting interest rates to new record lows, Glenn and his central bank are not just encouraging savers to borrow, invest and stay out of cash. They are stone-cold forcing the issue. That’s why the decision to cut the cash rate has sparked the latest leg up for Aussie stocks and real estate.

We’ve warned you for months that this was coming…most recently, both before and after the RBA’s recent interest rate cut. You’ve had ample opportunity to get ahead of the game and buy stocks before they get more expensive.

But some investors are still stuck in cash, stubbornly refusing to accept the new reality. As more and more of these punters capitulate, the market should continue to grind higher over the coming months.

Much like the RBA itself, these investors are late to the party. You don’t have to look too far afield to see the dramatic effect this monetary policy can have on your wealth…
www.moneymorning.com.au/20150218/interest-rate-cut-means-australian-stock-market.html
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 22 Feb 2015 08:53 #11

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Right now, the Reserve Bank of Australia (RBA) is doing just that. As an investor, the horse is you…and RBA Governor Glenn Stevens is the wrangler.

By cutting interest rates to new record lows, Glenn and his central bank are not just encouraging savers to borrow, invest and stay out of cash. They are stone-cold forcing the issue. That’s why the decision to cut the cash rate has sparked the latest leg up for Aussie stocks and real estate.

We’ve warned you for months that this was coming…most recently, both before and after the RBA’s recent interest rate cut. You’ve had ample opportunity to get ahead of the game and buy stocks before they get more expensive.

But some investors are still stuck in cash, stubbornly refusing to accept the new reality. As more and more of these punters capitulate, the market should continue to grind higher over the coming months.

Much like the RBA itself, these investors are late to the party. You don’t have to look too far afield to see the dramatic effect this monetary policy can have on your wealth…
www.moneymorning.com.au/20150218/interest-rate-cut-means-australian-stock-market.html

Im not quite sure their carrot and stick approach will work as well as they want this time.

Time will tell ey, but this time feels different says the nov. :cool2:
I remember the good old days, when 90+ year olds in nursing homes lived forever. Darn this pesky virus.

1365 = 1

1.1365 = 1,283,305,580,313,352
Last Edit: 22 Feb 2015 08:54 by novum.
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 23 Feb 2015 03:37 #12

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Nothing will work for any nation at this stage.Just a lot of shuffling of cards and moving of chess pieces.

Just a partial excerpt below -
Major Chess Moves Being Made

The Euro and the EU are sinking ships. The lifeboats are being readied for sail while the majority of the passengers dance to the music. Previous actions to repatriate sovereign gold reserves formerly held in other countries, the plan for each country to repurchase their own specific debt, and now this extend and pretend solution to the Greek debacle, should tell observers that the chess pieces are being moved. The timing on the end of the Euro and the EU is unknown, but the direction is clear.

The Greeks are not alone. Just about every major government and country around the world is broke. China is one of the outliers, but even their true financial situation is unclear. Despite their massive reserves, a black swan event hitting their banking system could quickly sweep aside even those vast sums.

A strong balance sheet is like a strong immune system. People in good health do not spend time to appreciate the immune system and the function constantly performed to ward off disease. Two healthy people would look the same to an outside observer, even if one had a compromised immune system. It only matters when a disease strikes.
kingworldnews.com/world-enter-period-immense-chaos-social-disorder/
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 19 May 2015 00:24 #13

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The Reserve Bank has cut official interest rates by 25 basis points to a fresh record low of 2 per cent

www.abc.net.au/news/2015-05-05/reserve-bank-cuts-interest-rates-to-2pc/6446372
I remember the good old days, when 90+ year olds in nursing homes lived forever. Darn this pesky virus.

1365 = 1

1.1365 = 1,283,305,580,313,352
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 19 May 2015 03:18 #14

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Not to worry Australia will not miss out on the global designed Hellstorm.

All is on schedule.
Did they finally made Australia the NWO headquarters.

That was the original plan but they should having there offices in Queensland if I'm not wrong.

@ oiram @
Last Edit: 19 May 2015 03:21 by Mario.
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You know Australia’s in trouble when the Reserve Bank cuts interest rates: Remy Davison 19 May 2015 13:46 #15

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MacArthur orchestrated the US Pacific campaign from Brisbane. ... but that's about it.



MacArthur Chambers
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