# Australian economy



## sorchs (Mar 30, 2011)

Hi all. 
My husband and I are looking into moving our family to South Australia. 

I'm from Ireland and witnessed the economy spiral out of control and even though some tried to advise that it was un-sustainable it fell on deaf ears. 'It won't happen here' and 'Sure Ireland is different' were bandied about daily by the majority. It has left our country devestated, broke and with a very bleak future for our kids. So, like many others we're thinking of leaving.

I'm worried though that the same thing is going to happen in Australia.
We had wanted to emigrate four years ago but chickened out  One thing we have noticed in that time is just how much house prices have soared (triple in some cases). I've also read a lot of reports on how 'Australia is different' and 'It will never happen here'. I'm sceptical to say the least. I would hate to move my family away from home looking for a better future only to find that we're facing the same problems but just a few years behind.

Any thoughts from anyone would be great,

Sorchs


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## twister292 (Mar 25, 2011)

Australia is not immune to downturns, thats a given. However, the fundamentals driving the Australian economy at the moment are high prices on minerals and commodities, not credit ballooning out of control like what happened in UK/USA.

One thing that sets the Oz government apart is monetary policy...the RBA is a lot more hawkish on monetary policy than the US Fed or the BoE, which is why the interest rates here are much higher than rest of the world.


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## stormgal (Sep 30, 2009)

Sometimes I think that all Western economies are somewhat controlled by the "powers that be" (I won't elaborate). So although Australia at the moment is not suffering from the downturn, I believe that it will only be only a matter of time before it does.

I'm sad with what happened to Ireland, and I see that it will happen in the US and in the UK as well. I used to think that Oz was immune - well sort of, but then on studying that housing market, I (and many others) have come to realize that it's just somewhat of a replica-to-be of what's happened in the US housing market. Once that housing market collapses (and I believe it will), then the economy will also take a dive. How strong the dive will be is only a matter of speculation.

The good thing about Oz is that it has less people, and dealing with less people always fair better.


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## twister292 (Mar 25, 2011)

in the USA the housing market imploded due to excess supply...in Australia the prices are high because the demand/supply ratio remains tight...

I'm not an apologist, but the management of the economy here is a lot more prudent than the Greenspan/Bernanke -incited credit bubbles...

Moreover, unless demand for natural resources faces a severe downturn, that sector of the economy will remain strong...


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## stormgal (Sep 30, 2009)

Twister - I hate to contradict you but that is not true. Point in case the law of supply and demand would apply in this case if everyone had the actual money to buy a home. But this was not the case in the united states, nor is it the case in Australia. The *real* demand is in credit - how much money is available to the public and how shady lending practices have become at the global level. Everyone knows, for instance that a big part of the reason why the economy is strong in oz, is because its interest rates are kept at a standard. But that interest rate will eventually become unsustainable -


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## sorchs (Mar 30, 2011)

twister292 said:


> Australia is not immune to downturns, thats a given. However, the fundamentals driving the Australian economy at the moment are high prices on minerals and commodities, not credit ballooning out of control like what happened in UK/USA.
> 
> One thing that sets the Oz government apart is monetary policy...the RBA is a lot more hawkish on monetary policy than the US Fed or the BoE, which is why the interest rates here are much higher than rest of the world.


Hi Twister, thanks for your reply.

I understand where you're coming from I do wonder however about how 'in control' credit is in Austalia. I read a report that would disagree with that. Two quotes: 

' According to the ‘2010 International Housing Affordability Survey: Rating for Metropolitan Markets’, Australia is home to 22 of the top 58 most unaffordable metro housing markets in the world. '

'According to this chart, a median-priced property (in Melbourne) will set you back 7.8 times the average Aussie salary... or to put it another way, if you’re earning the average $68K wage over 85% of it will be spent on your mortgage'

I would have thought sensible lending would see borrowing of three times the average wage or 30% of income being spent on your mortgage. Those figures to me point towards a bubble.

There is more at the link below

Money Morning

Thanks also stormgal, I agree with what you've said sadly


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## Weebie (Sep 16, 2009)

I hate to say this but really Australia is different.

Firstly Australians are far wealthier than Americans or Europeans and have earn in many cases much higher incomes consider also the fact that costs are also much higher here.

Australia's population realistically is centred around 4-5 cities and these cities are big now and getting bigger.

Large Migration, Every man and his dog is trying to get to Australia and with migration comes money and house prices stay up.


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## stormgal (Sep 30, 2009)

Weebie said:


> Firstly Australians are far wealthier than Americans or Europeans and have earn in many cases much higher incomes consider also the fact that costs are also much higher here.



I'm sorry, I know you mean well, but I'm not necessarily sure about this, because there are no stats that prove this to be true. 

What is wealth? Money in the bank, a stable job, your 401K (retirement), and the ability to be able to take out a loan and buy a home. (If it were the other kind of wealth - like Bill Gates wealth, then Australians wouldn't have to work). Anyway, the great majority of Americans had that just 5 years ago, and even more so during the .com and the housing bubble eras. Once again, it was only until these bankers started with their shady lending practices and over extended credit to those who clearly did not deserve it that the whole system went kabloy. 


Now I do believe that Australia is a good 10-15 maybe 20 years behind the US and Europe for that matter, and Americans and Europeans were "wealthier" 20 years ago as well, while Australians weren't necessarily so. But down the road 10, 15 years to the future, and you're likely to see the same thing happen there as well. Why? Because it's the same corporations and bankers that are controlling this whole system. Now that we're all going global, what happens in one area, the other will get dragged along for the sake of politics. 

Don't you think it's too much of a coincidence that the financial systems of Iceland, Ireland, Greece, and others have collapsed? As for the UK, I don't even want to go there, you will see how they will be next - the debt they have and the inability to pay it back can give anyone who lives there nightmares for life if they come to find out the truth. 


Like I said, it's just a matter of time when it all catches up and the sad reality is, that by that time, there will be nowhere to run. But like some of us have mentioned before, Oz, and even NZ will be in a much better position than the rest of the western world, contingent that no severe catastrophes and lord knows what other earthquakes, or floods don't happen.


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## twister292 (Mar 25, 2011)

Australia's current (trade) account is in surplus at the moment...credit availability is there, but well below the levels that led to the sub-prime meltdown in the USA...there's no concept of a "sub-prime" mortgage here, at least with the big lenders...

House prices are distorted but as such, a protracted retreat is unlikely in the short term considering that demand for housing does remain high due to incentives such as the FHOG from the government...

What many people don't realise is, there will be money flowing in to the economy as long as there is demand for resources and minerals...and there's nothing to support the notion that it will go down any time soon, with chinese and indian demand for steel, coal and other commodities being borderline insatiable at the moment...


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## Weebie (Sep 16, 2009)

stormgal said:


> I'm sorry, I know you mean well, but I'm not necessarily sure about this, because there are no stats that prove this to be true.
> 
> What is wealth? Money in the bank, a stable job, your 401K (retirement), and the ability to be able to take out a loan and buy a home. (If it were the other kind of wealth - like Bill Gates wealth, then Australians wouldn't have to work). Anyway, the great majority of Americans had that just 5 years ago, and even more so during the .com and the housing bubble eras. Once again, it was only until these bankers started with their shady lending practices and over extended credit to those who clearly did not deserve it that the whole system went kabloy.
> 
> ...


Everything about that post is incorrect and ignorant of Australia and how it operates compared to America which has been on a downwood slope for 30 years.

Australia is a legitimate first world country, America isn't.


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## stormgal (Sep 30, 2009)

Weebie said:


> Everything about that post is incorrect and ignorant of Australia and how it operates compared to America which has been on a downwood slope for 30 years.
> 
> Australia is a legitimate first world country, America isn't.



 Well, I guess everyone is entitled to live in their own bubble. You know, I didn't post that information to put anyone down, or to brag, but because it's a reality. The truth is that the world is about to enter another great depression, and although some countries will fare better than others, no one will be immune.

By the way, why if the US is so illigit and Australia is a legitimate first world country, why did you post this:



Weebie said:


> "I work in sales and am well aware of a downturn in the states but heaps of jobs seem to be going on craigslist atm is the economy getting better and also if worse comes to worse and i just need any jobs like bartending or waiter is it hard to get these? I don't really don't care if I haev to do these jobs for a while I'm f**king over the boganism subculture and just general b*ll**** that Australia provides to me every day. It's a very overrated nation.
> 
> Peace. ?



:rofl::rofl:


Aw, Weebie, never mind the differences, I still like you


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## kaz101 (Nov 29, 2007)

We live in regional South Australia and we are self employed with our own small businesses. We tend to network with other small businesses and every one of them is reported a drop in business (apart from the pharmacies because people tend to need them no matter what). 

In Australia at present we have a two tier economy with the mining industry doing incredibly well and that is affecting how Australia is being seen at the moment. However other industries are not doing as well. Tourism where we are is struggling because it now seems cheaper to go aboard since the Aussie dollar is so strong. The mining industry supplies China with a lot of raw materials but China is trying to slow down their economy to make sure it doesn't over heat - if they slow down their economy then Australia's economy will slow down too. 

With banks the USA and UK have had different rules than in Australia. At one time in the USA and UK the banks only needed 10% of a sum of money on reserve to lend on 100%. For example if a bank wanted to lend 100,000 they only needed 10,000 on deposit since they knew that the rest of the money would come from new deposits from customers. This has never been the case in Australia and now I believe the USA and UK banks have changed to keep more money on deposit. 

House prices tend to drop (bubble bursts) when people have to pay over 35% of their income for the mortgage over a long time. Most property investment companies state this and in some areas in Australia people are now having to pay over 40% of their income on a mortgage so there will be a price adjustment. 

Sorchs you mentioned that you might be moving to South Australia - which parts? If you are thinking about the Limestone Coast and Mount Gambier wait until after the decision about forward selling of forests. The SA State Government are thinking about forward selling the forests for the next 100 years and it could have devastating effects on the economy in those areas. 

Regards,
Karen


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## MEB (Aug 31, 2009)

sorchs said:


> Hi all.
> My husband and I are looking into moving our family to South Australia.
> 
> I'm from Ireland and witnessed the economy spiral out of control and even though some tried to advise that it was un-sustainable it fell on deaf ears. 'It won't happen here' and 'Sure Ireland is different' were bandied about daily by the majority. It has left our country devestated, broke and with a very bleak future for our kids. So, like many others we're thinking of leaving.
> ...


Hello Sorchs
Replying from ireland where we have a VISA for Victoriia and are deciding whether to go probably for the same reasons as you. You are pefectly correct about Australian house prices. There is a bubble in melbourne at least and in some parts of Sydney. Not sure about Adelaide. You should consider what are your objectives in the decision you are making. What type of life do you want. Always go back to your objectives when faced with a big decision - it always helps you to make the right one.

Realistically it is impossible to predict the economic future of Ireland or Australia. Don't just go there because of your childrens economic future. For example, you might want to go to a better country because you think your children might have to emigrate from here. Even if you go to Australia and settle in Adelaide, there is just as much likelihood that your children will move to Sydney or Perth which is hours away on a plane and like flying from Dublin to Athens. So while they may still be in the same country as you, they will still be very far away. All economies are cyclical and at the moment Australia is booming but there has to be a slowdown at some stage. In the same way, Ireland is a basket case but things will get better - might take 15 years but eventually it will happen. We are unlikely to have the same credit-fuelled bubble ever again and certainly not in our lifetimes. 

We are trying to decide whether to go to Australia at the moment for the same reasons as you. We are wondering about the type of society in which our children will grow up so I understand how you feel. One thing that gives me consolation when I think of how cocked up this place is and whether there is a future for my business: Australia is not like transportation - you can always come home. See it as an adventure - if you like the place you will stay, if not you can come home and at least say you gave it a go.

Some othere have made the point that there is a big demand to get into australia and as the population grows they can use this to their advantage - its called economic churn and is one of the biggest problems we have in ireland - there are too few people. (We could easily double the population!) Consequently this will help to sustain their ecomony. Also, I have yet to meet someone who went to Australia and said it was an awful dump and they are glad they left.

Good luck with your decision and your application.
MEB


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## Guest (Apr 19, 2011)

For reference and everybody's knowledge, let me get the facts straight (I seem to be doing that a lot these days). In general economies DO NOT rise and fall because of housing prices. The US economy did because:

1. Some sharp opportunists (read: Goldman Sachs) knew exactly which sector (sub-prime mortgages) were underperforming and sold the losing side of derivative securities to stary eyed fools willing to throw their money about.

2. Freddie Mac and Fannie Mae exist. Actually their existence ALSO toned down the severity but that is a different story.

3. The economy turned out to be a house of cards built upon an undergirding of chewing gum - in other words, major players like Bank of America, Lehman Brothers etc. were major players because they had borrowed huge sums from each other and from other parties.

So when it came time to pay up all the on paper money, nobody had any money to pay and the economy froze up. The rest as they say, is history.

Could a similar situation happen in Australia? Well yes and no. The Australian government's style of governance and the position of the general public in the past year has been dynamic, visionary, and forward thinking. Cases in example:

1. Rise of Julia Gillard as prime minister in response to the shabby handling of affairs by her predecessor.

2. Careful fiscal policy in the face of natural disasters.

3. Overhaul of the skilled worker visa program to better suit Australia's needs.

All of these things hint of a population that is educated and aware of its rights and responsibilities and extremely quick to take to task any transgression by the government and a government keen on making its mark upon the world by being on top of everything. Hence, all indications are that Australia will prosper. Of course nobody can predict the future, but this much is sure - the possibility of any economic downturn in Australia hitting you is less than or equal to the possibility of a downturn hitting you anywhere else in the world. Moving to Australia is the best move humanly possible that you could make for yourself and your children. The rest is pure luck and your ability to bullet proof your job and your portfolio...


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## Darla.R (Mar 27, 2011)

Weebie said:


> I hate to say this but really Australia is different.
> 
> Firstly Australians are far wealthier than Americans or Europeans and have earn in many cases much higher incomes consider also the fact that costs are also much higher here.
> 
> ...


I think you're right Weebie. Australia is still seen as the choice destination for so many people from all over the world and it only lets in skilled people with a good chance of finding work. As long as people keep migrating here and it keeps producing minerals the world wants the economy will stay up.


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## Guest (Apr 20, 2011)

Darla.R said:


> I think you're right Weebie. Australia is still seen as the choice destination for so many people from all over the world and it only lets in skilled people with a good chance of finding work. As long as people keep migrating here and it keeps producing minerals the world wants the economy will stay up.


Correction. As long as Australia keeps finding ways to export, the economy iwill stay up. I think the Australian government is quite a few notches ahead of the Arab Oil Sheiks who got rich without having to work and would probably revert to abject poverty if oil didn't keep their coffers well filled. I don't know if there is such a thing, but the Australian government must have an idea of how long minerals can support the economy and must have alterntive arrangements in place.


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## twister292 (Mar 25, 2011)

ausimmi said:


> For reference and everybody's knowledge, let me get the facts straight (I seem to be doing that a lot these days). In general economies DO NOT rise and fall because of housing prices. The US economy did because:
> 
> 1. Some sharp opportunists (read: Goldman Sachs) knew exactly which sector (sub-prime mortgages) were underperforming and sold the losing side of derivative securities to stary eyed fools willing to throw their money about.
> 
> ...



Actually, a large part of the US economic downturn does come from the housing bubble...with the housing market there faced with severe over-supply, and nearly free credit during the Greenspan years, the bubble ignited by the Fed deflated with some serious wealth destruction...that is the root cause of the middle class going under...

With the wealth of the middle class decimated, the consumption side of the economy is very weak...and thats why the recovery is slow and sticky...

With Australia, in my opinion, the fundamental of strong economic growth and good management were laid during Howard's era (1996-2007)...10 years out of those 11 produced budget surpluses (and decreasing taxes progressively), and Australia became essentially a debt-free state during the Howard era...

Much of that can also be attributed to the sharp policies of the RBA...the RBA under both governor McFarlane and Stevens remains a very hawkish bank, and in the past they havent hesitated to push rates up pre-emptively either...Australia's credit market is not as lax as the US one, rates are higher and credit controls are tighter as well...

Moreover, housing in Australia retains a "price floor" of sorts due to demand/supply...there is a support level for housing prices because demand-supply are not hugely mismatched...

Recently, house prices have gone down, but if someone is anticipating being able to get even a shed for less than a million in Brighton or Mosman, it's wishful thinking at best...


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## Guest (Apr 20, 2011)

twister292 said:


> Actually, a large part of the US economic downturn does come from the housing bubble...with the housing market there faced with severe over-supply, and nearly free credit during the Greenspan years, the bubble ignited by the Fed deflated with some serious wealth destruction...that is the root cause of the middle class going under...
> 
> With the wealth of the middle class decimated, the consumption side of the economy is very weak...and thats why the recovery is slow and sticky...


We are agreed on this.



twister292 said:


> Much of that can also be attributed to the sharp policies of the RBA...the RBA under both governor McFarlane and Stevens remains a very hawkish bank, and in the past they havent hesitated to push rates up pre-emptively either...Australia's credit market is not as lax as the US one, rates are higher and credit controls are tighter as well...


Interest rates are NOT a function of the central bank's hawkishness. Also, the economy is NOT a function of the interest rate. Interest rates usually reflect the status of the economy, meaning, usually interest rates are a function of the economy. In the current scenario, the Australian central bank has no option other than keeping interest rates where they are. If being 'hawkish' create a sound economy, then every central bank would be hawkish. The reason for the Federal Reserve's current policies are manifold. We can rest assured that we might not even comprehend all of their reasons. There may be plots within plots within plots. People in the know have been expecting the current situation for some time and concerns have been raised on appropriate forums.



twister292 said:


> Moreover, housing in Australia retains a "price floor" of sorts due to demand/supply...there is a support level for housing prices because demand-supply are not hugely mismatched...
> 
> Recently, house prices have gone down, but if someone is anticipating being able to get even a shed for less than a million in Brighton or Mosman, it's wishful thinking at best...


As I said, in general, economies are only partly dependent on housing prices. It is NOT necessary that a housing bust would topple the Australian economy.


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## twister292 (Mar 25, 2011)

ausimmi said:


> Interest rates are NOT a function of the central bank's hawkishness. Also, the economy is NOT a function of the interest rate. Interest rates usually reflect the status of the economy, meaning, usually interest rates are a function of the economy. In the current scenario, the Australian central bank has no option other than keeping interest rates where they are. If being 'hawkish' create a sound economy, then every central bank would be hawkish. The reason for the Federal Reserve's current policies are manifold. We can rest assured that we might not even comprehend all of their reasons. There may be plots within plots within plots. People in the know have been expecting the current situation for some time and concerns have been raised on appropriate forums.


While I agree in principle to what you said, some reserve banks are much more keen to pull triggers than others pre-emptively...with the RBA, both stevens and macfarlane are from that category. The current rates in Australia are already about the highest in the developed world...

Being hawkish in its own right does not create a better economy, but it can help to deflate asset bubbles much earlier in their life cycle than what a more accommodating monetary policy would entail...

In Australia, the current spread between consumer mortgage rates and the reserve overnight cash rate is 3% or so...which means with the OCR at 4.75%, mortgage rates are around 8%

The current interest rate setting is already quite restrictive for much of the economy, so an upward move is unlikely for some time...retail and service exports are already quite weak...

And the high exchange rate is keeping a lid on the cash inflows to exporters as well...



> As I said, in general, economies are only partly dependent on housing prices. It is NOT necessary that a housing bust would topple the Australian economy.


While it wont topple the economy outright, a sharp downturn in housing prices will severely dent the middle class...it will turn the tables on people relying on negative gearing...

However, housing in Australia has a support price level due to demand/supply constraints...at the moment there is no indication of over-supply....


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## Guest (Apr 20, 2011)

twister292 said:


> [Snip]...While it wont topple the economy outright, a sharp downturn in housing prices will severely dent the middle class...it will turn the tables on people relying on negative gearing...


Agreed. The effect would be exacerbated if people take loans on homes currently under mortgage. This was one of the factors that pummelled the Americans very bad. Is this possible in Australia??


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## twister292 (Mar 25, 2011)

ausimmi said:


> Agreed. The effect would be exacerbated if people take loans on homes currently under mortgage. This was one of the factors that pummelled the Americans very bad. Is this possible in Australia??


In Australia a lot of people rely on "negative gearing" where the mortgage payments are higher than the rent the house generates...this under Australian tax laws (in my knowledge this is only allowed in Australia, NZ and Canada) is treated as losses on speculative investment, and can be offset against other income sources while calculating gross taxable income. This can sometimes push people into lower tax brackets...

Mortgages/Home loans in australia are secured against the property itself, although the deposit:finance ratios can be quite high (as much as 10:90)...there's no active market for the "credit default swaps" and such fancy instruments which exploded up the USA's backside...

The key difference with USA is the availability of credit itself...there's no concept of a "sub-prime" property loan here, because the market is dominated by the few well-capitalised banks, and here again the RBA plays its part, by setting much tougher criteria than the US Fed...regulations on financial institutions are much tighter here than the USA where Goldman Sachs and their IB peers more or less call the shots over the entire market...


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