# Aussie Property Bubble



## TKline (Jul 11, 2011)

What do people moving here think about Aussie house prices?

There's a lot of talk in the media about our high prices and possibility of the housing bubble bursting.

That, and the strong Aussie dollar, must be putting a lot of expats off buying a house here, or even moving here at all?

Am I right?


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## twister292 (Mar 25, 2011)

TKline said:


> What do people moving here think about Aussie house prices?
> 
> There's a lot of talk in the media about our high prices and possibility of the housing bubble bursting.
> 
> ...


Prices have been moving sideways and slightly downwards for the last half a year or so...but so far it doesnt appear like a spiral slide is likely like the USA.


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## stormgal (Sep 30, 2009)

When you analyze these things, it's best to do so on a global level, and not specific to country: 

There are several factors, but I'll only write about two - 

There is an Asian dollar bubble waiting to burst, and since Australia's economy depends on Asia's success, it doesn't look well.

Oz banks were only saved because of the tripling of the FHG after housing started to dip with those of the rest of the worlds. In other words, saved by a bailout *before* the crash. Now they are on negative credit watch and their books are primarily made up of residential mortgages. 

Moving to Australia from the West may buy you some time at the start of the next big depression, but it will not completely prevent you from experiencing the effects of what is to be the worst global depression in all of history. I don't want to sound negative, but I've been studying this mess for over 7 years and have come to accept the there are no solutions for what's to come. 


Read Steve Keen's Debt Watch - he's a University professor at Sydney, Australia who specializes in economics and finance. 

Steve Keen's Debtwatch


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## twister292 (Mar 25, 2011)

The Australian dollar is not in a bubble by itself.

The Cross-rates for pairs such as AUD-JPY and AUD-EUR are around their nominal LTA rates...it's only the USD which is sinking like the titanic after hitting an iceberg


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## stormgal (Sep 30, 2009)

twister292 said:


> The Australian dollar is not in a bubble by itself.
> 
> The Cross-rates for pairs such as AUD-JPY and AUD-EUR are around their nominal LTA rates...it's only the USD which is sinking like the titanic after hitting an iceberg



I never said anything about the Australian dollar. But for your information, all FIAT currencies are bubbles.


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## twister292 (Mar 25, 2011)

stormgal said:


> I never said anything about the Australian dollar. But for your information, all FIAT currencies are bubbles.


That would be going into a very political debate  

But as such, considering that a lot of countries such as Brazil, South korea etc are grappling with appreciating currencies, that is due to broad-base weakness of the USD.

The AUD is not too far off from its long term averages against the Yen, Euro etc..


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## amaslam (Sep 25, 2008)

I'm in agreement with Twister on this one. I certainly think the AU House prices are high but then I look at what factors need to happen for them to have a spiral down slide instead of the sideways/slightly soft we're seeing now.

Spiral slide case:
1. Major AU job losses (much higher unemployment)
2. Inability of a significant percentage of mortgage holders no longer able to make payment (little or no savings to service mortgage)
3. Significant decrease of investors making regular trades in the housing market.
(Investors flee to other investment classes and put a large supply of their properties onto the market at once)
4. Significant softness of demand from AP region for Australian resources and goods, primarily China. (China puts a brake on their economy such that they slash demand for AU resources, same needs to happen for other AP nations as well.)

It's only (3) above that I see happening a bit (not in large amounts) and not at the significant level.

Here is what is supporting the high prices:
1. vacancy rate of rentals < 3%
2. Investors still in the market
3. Unemployment rate still around 5% so most people fully employed
4. People increasing savings rates to ride expected roughness in the coming 2 yrs
5. People still able to make their mortgage payments
6. Undersupply of new housing vs. incoming demand
7. You cannot hand in your keys to the bank and walk, you are still liable for the difference between mortage held and the price bank received when property was onsold by them.

***
So in the next 3 yrs I see softness/sideways but not a major panic. A plateau and I for one don't mind a plateau as it gives some chance for me in the future to get a bigger place (house instead of unit). If house prices continually increased faster than my salary at some point I just couldn't get into most housing. This is the main problem for First time homeowners trying to enter the market and this has led to their representation being < 20% (at least in Sydney).


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## stormgal (Sep 30, 2009)

Well, I respectfully disagree with you both, but that's not why I am commenting here. 

I wanted to apologize to Twister, my tone didn't sound so nice! 

I answered that post while I was at work, and wasn't in the best of moods with all the pulling and pushing! (Not that this is an excuse, but you know how it is  )


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## twister292 (Mar 25, 2011)

Perhaps another key overlooked factor is that unlike the USA, there is no concept of a subprime mortgage lender in AU...



stormgal said:


> I wanted to apologize to Twister, my tone didn't sound so nice!
> 
> I answered that post while I was at work, and wasn't in the best of moods with all the pulling and pushing! (Not that this is an excuse, but you know how it is  )


It's all good, no worries


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## AusGerman (Aug 5, 2011)

I do not quite agree with your points, see my comments



amaslam said:


> Here is what is supporting the high prices:
> 1. vacancy rate of rentals < 3%
> Vendors not able to sell the house are putting it back into the market, vacancy rates on the raise.
> 2. Investors still in the market
> ...


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## aliciathoo (Jul 18, 2011)

can i ask if getting a property would it be better to get a mortgage broker or can we deal with the bank ourselves? how much wld a broker charge?


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## twister292 (Mar 25, 2011)

You can deal with the banks yourself. There are websites which can help you compare rates/fees across banks.


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## sriikanth (May 23, 2009)

The fall of the Aussie Dollar and Aussie house prices begins .......


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## twister292 (Mar 25, 2011)

sriikanth said:


> The fall of the Aussie Dollar and Aussie house prices begins .......


Property prices have been moving sideways and slightly downwards for a good 6 months now...


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## stormgal (Sep 30, 2009)

The coming depression will be global and not limited to just a few countries. People really need to understand that and make decisions accordingly. Unfortunately, Oz will not immune. If you are moving from the West, especially from the UK, you may be able to buy time. (I believe the UK will go the way of Iceland very shortly as will the US).

BUT, as you'll read by clicking on the links below, Oz tops the charts with debt on a national scale at #14. It's a country that is also in debt - just like the rest of the West (with the percentage of GDP being exactly like that of the United States )

List of countries by external debt - Wikipedia, the free encyclopedia

National debt to reach $1 trillion | News.com.au

The new commodities will be food and fuel. This is why there is global unrest. It starts slowly - with those countries that were always disadvantaged, and spreads like a cancer around the globe. It is the time of reckoning - for over drilling, dependence on fiat currencies, borrowing, and spending like there is no tomorrow. 

The best thing anyone can do now is get their own food plot to grow their own fruits and vegetables and to invest wisely. 

Also, please do not listen to these people who run the media and say that all is okay - that a recovery is imminent. That's the worst mistake anyone can make. Because the crash will fall on you like a ton of bricks and you'll find yourself unprepared.


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## twister292 (Mar 25, 2011)

There was an absolute bloodbath in the stock markets today...

Stormgal: Adding private and government debt is meaningless.


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## stormgal (Sep 30, 2009)

twister292 said:


> Stormgal: Adding private and government debt is meaningless.


Well, you'd have to back up what you say.

You know that all governments have to do is raise taxes to pay the debt, only leaders don't want to do this because they want to remain popular with the people. But if your country is not paying off its debt, well, Moody's will downgrade the country's ratings. Who cares, one may ask? Well, both of these actions trickle down to the country's economy:

It forces employers to lay off because they don't have the allowance to pay the extra tax the government is demanding, or the funding to pay the higher interest rates that are imposed. 

Bad credit ratings, by the way, don't allow your government to borrow at low interest rates. And since *all* western governments are used to borrowing, they'll have no choice but to tax the people to pay it off to continue borrowing or let the country suffer with higher interests. This will make borrowing more expensive - meaning higher interest rates on credit cards, car loans, student loans, mortgages, etc. 

So called fixed rates are useless - at the end of the day, the lenders can do whatever they please, it is their money you're borrowing after all. All they have to do is send you a small notice informing you about a "change of agreement" and unless you fight tooth and nail, (or even notice what they've done) you'll be sucked right into paying additional fees. Plus what's the use of having a "fixed rate" if the taxes on the property will go up sky high to fund the country's debt?


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## twister292 (Mar 25, 2011)

Here's what backs it up...

Private sector debt is all debt owed to external _and_ internal creditors by the private sector. This includes debt that Australian entities owe to each other, with no involvement of external creditors.

The sovereign rating of a country is based on government's debt fulfillment...the sovereign rating of the government is the ceiling any private sector entity within a country can have.

Government debt is a relatively small part of the overall debt of Australia...and moreover, there is no guarantee that government debt is actually owed to international creditors in full. There's plenty of investors within AU who buy RBA bonds.

An example is the USA...just because the sub-prime mortgage market imploded and left private sector credit in tatters, did not mean that the government was unable to fulfill interest payments on their treasuries...

And no, fixed-rate mortgages cannot have rates changed that easily. Unless there is a clause in the agreement allowing the lender to change the rate interim, a fixed-rate mortgage is just that. It is legally binding if the contract is formulated as such. Changing of terms of a contract unilaterally is usually reasonable grounds for the termination of the contract itself.

Variable-rate tracking mortgages can change at the discretion of the lender though.


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## stormgal (Sep 30, 2009)

twister292 said:


> Here's what backs it up...
> 
> Private sector debt is all debt owed to external _and_ internal creditors by the private sector. This includes debt that Australian entities owe to each other, with no involvement of external creditors.



For the most part, it isn't the banks that lend out externally, but they do so through investment services like the now defunct Lehman Brothers and Goldman Sacks, which by the way, the latter which service Australia as well. So even if 80% or so of a banks books is made up of mortgages, the debt could still be sold to investment company's like GS.

Also, commercial banks take advice from the country's reserve bank, which in turn takes advice from the IMF and the World Bank. They are all related. And most banks, operating under the direction of the "central bank" employ a banking system which use fractional reserves, meaning that most money is generated by banks and not by the government.


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## twister292 (Mar 25, 2011)

stormgal said:


> Also, commercial banks take advice from the country's reserve bank, which in turn takes advice from the IMF and the World Bank. They are all related. And most banks, operating under the direction of the "central bank" employ a banking system which use fractional reserves, meaning that most money is generated by banks and not by the government.


Which is exactly why the government doesnt have too much to lose...the government has enough assets to cover state debt.


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## stormgal (Sep 30, 2009)

twister292 said:


> Which is exactly why the government doesnt have too much to lose...the government has enough assets to cover state debt.


Oh yeah, de'ja vu, I too have heard that one before. I'm sure those in the UK, Iceland and Greece have as well.


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## twister292 (Mar 25, 2011)

stormgal said:


> Oh yeah, de'ja vu, I too have heard that one before. I'm sure those in the UK, Iceland and Greece have as well.


Australia is not Greece...we don't have 80% of our GDP hidden in the shadow economy


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## TKline (Jul 11, 2011)

amaslam said:


> Here is what is supporting the high prices:
> 1. vacancy rate of rentals < 3%
> 2. Investors still in the market
> 3. Unemployment rate still around 5% so most people fully employed
> ...


I'd agree with some of those but not all. On the first point, I'm not sure what's special about 3% vacancy rate. If you look at the national vacancy rates by SQM Research, the vacancy rate has been around 2% since at least 2005 (that's as far back as the chart goes) apart from a brief rise to 3% in 2009. So it looks like vacancy rates are normally under 3% anyway. (See National Rental Vacancy Rates)

On the sixth point, I honestly don't believe the 'undersupply' argument. In fact there is a lot of evidence Australia has been overbuilding for decades, with around 10% of homes empty and more homes built than households formed over the past couple of decades. (See There is no Australian Housing Shortage)

On the third point (unemployment rate), the unofficial measure suggest unemployment is about to start rising again. (See Forget rate rises... now comes the employment shock)

All in all I'm feeling pretty bearish about Aussie house prices, given those points and the fact interest rates are likely to keep rising to counter the out-of-control inflation.


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## TKline (Jul 11, 2011)

stormgal said:


> Read Steve Keen's Debt Watch - he's a University professor at Sydney, Australia who specializes in economics and finance.
> 
> Steve Keen's Debtwatch


Good tip. I do! Steve is one of my favourite economists (and one of the few to predict the GFC).


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## stormgal (Sep 30, 2009)

*ok, here we go...*

For those of you who think that the GFC will only affect the US, UK and Europe - I disagree: GFC symptoms are beginning to prop up everwhere:


*New forecasts from investment firm Bank of America Merrill Lynch say another 100,000 Australian jobs could be lost from the economy by March next year.* 

The research also predicts unemployment could rise from 5.1 per cent to 6 per cent over the next six months. 

Bankers predict 100,000 jobs to go - ABC News (Australian Broadcasting Corporation)

*Jobs axed as BlueScope dives into the red*

_Australia's biggest steelmaker BlueScope Steel has confirmed it is shedding at least 1,000 jobs after reporting a net loss of more than $1 billion in the 12 months to June._

Jobs axed as BlueScope dives into the red - ABC News (Australian Broadcasting Corporation)


*Manufacturing job losses imminent: Howes*


_The national secretary of the Australian Workers' Union (AWU), Paul Howes, says a "huge" number of job losses will be announced in the manufacturing sector in coming week_

Manufacturing job losses imminent: Howes - ABC News (Australian Broadcasting Corporation)


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## stormgal (Sep 30, 2009)

Found one more relating to IT:

_GLOBAL economic turmoil has heightened caution in Australia, with recruiters warning that new IT projects could be deferred.

While many recruiters and technology chiefs expect hiring to remain steady until the end of the year, market uncertainty is top of mind.

The recent global share meltdown has been compounded in NSW by government plans to axe thousands of public sector roles. "IT would definitely be in their sights," Alcami director Jane Bianchini said. _

continue reading here:

Global market turmoil points to project delays | The Australian


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## jm21 (May 4, 2011)

I think that AUS is in a housing bubble right now and wouldn't even think about buying, but that wouldn't really effect me moving there. I'd rent for the first few years anyways and rental prices probably wouldn't be affected much. 

However, I really wish the USD would go back up a bit before moving...


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## stormgal (Sep 30, 2009)

jm21 said:


> I think that AUS is in a housing bubble right now and wouldn't even think about buying, but that wouldn't really effect me moving there. I'd rent for the first few years anyways and rental prices probably wouldn't be affected much.
> 
> However, I really wish the USD would go back up a bit before moving...


My exact same mentality. I guess we must be traumatized!


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## pcrial (Sep 27, 2010)

twister292 said:


> Which is exactly why the government doesnt have too much to lose...the government has enough assets to cover state debt.


Hi stormgal and all,

The late Joseph A Schumpeter, warned that governments are the cause of economic difficulties. World history has proven that governments have an insatiable appetite for money. Their only source of money is their own people. Therefore any government which is allowed to exist long enough will become oppressive.

Interestingly, in a US congressional debate about taxes Schumpeter told congress, "you say you want economic prosperity, yet the surest way to have less of something is to tax it..." He went on to explain the overall effect of even 1% tax. By the time you work through all the economic permutations a 1% tax, can cost the economy multiples of that.

Having retired from a big 3 US automaker, I saw an internal analysis which showed the effect of 30% corporation tax on profit. Everyone knows corporations do not pay tax, the tax is rolled back into the cost of the product. So by the time you figured the 30% tax on every corporation that made for example the tires, the rubber belts, the bearings, the sheet metal, the paint, the seats, carpeting, trim all of which come from individual corporations who have done the same, the price of a car is times three.

So when you go to buy a new car, you are paying for the cost of the car times three, because of the 30% corporation taxes. That doesn't even account for the fact that to have $1, you must earn a lot more, to cover your own personal taxes. Then we have many other taxes rolled into every level of the economy. That is why the cost of manufactured goods is so high. The price reflects all the taxes at every level of the economy rolled back into the price of the goods.

Housing is no different. The Queensland government is offering a $10,000 rebate on the $27,000 government development fee. What does the fee cover? Mostly writing a few entries in log books, and filing some records. The primary function of governments is to collect money. So it always ends up being about the money. Just the governmental fees, included in the price of housing has caused the house prices to be crazy. The intrinsic value of land has traditionally been, the value the land can produce in crops. These days land prices in Australia are such that trying to buy land to produce crops guarantees bankruptcy. The problem is, the government's insatiable appetite for money guarantees economic difficulty as the government matures, and adds new taxation into new levels of the economy like, the new carbon credits tax. Utility prices are expected to triple slowly over the next few years. 

Politically it sounds good to say, we are doing the carbon credits to stop climate change. Then on the other hand, when have politicians ever solved a problem. Their answer to every problem is a new fine or tax. A fine is a tax for doing something wrong. A tax is a fine for doing something right. Mr Schumpeter wasn't popular in government, that is why governments have chosen to ignore his wisdom. So the economic problems were inevitable, and programmed right into the plan, by adding one new tax after another. History tells us the last official act of the Roman Empire was to raise personal income tax to 67%. After that the empire folded, since there was not enough money left in the economy for families to take care of their needs, so they just left going other places where the taxes weren't so high. Rupert Murdoch went to the US, and became a naturalized citizen, because the Australian taxes were too high, but now, he faces the same oppressive taxes in the US. All over the world, taxes are causing migration, because those responsible for taking care of families are having difficulty, yet, they end up migrating to situations which may be temporarily better, but will eventually suffer the same fate as their home countries. Mr Schumpeter predicted, tax migration on the increase as taxation became more and more oppressive.

Cheers,


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## Guest (Aug 24, 2011)

Let us say the government charges 0 taxes. So now you have all those $$$ floating in you bank. Let us see what happens:

1. You need to spend money to ensure clean water. Unfortunately, since there is no one doing any scientific analysis on the kinds of germs that are cropping up in the water supply, you are reduced to trial and error to find the optimal manner in which to treat water before drinking.

2. You need to spend money/time to clean the street in front of you house and find a place to dispose you trash such that no one else complains.

3. You need to spend money to ensure safe transportation. Unfortunately, since no one is doing any scientific analysis to determine rules for safe transportation, you are at the mercy of greedy corporations who will dupe you into buying trash from them if they can just find a way to do so.

4. You need to spend money on securing yourself against thugs and other criminals.

5. Your country doesn't have an army, so you are totally at the mercy of countries that do tax their citizens and have an army.

The list goes on and on. Paying taxes feels disgusting here in Pakistan where we know the government is corrupt and we get almost 0 services against the money we pay. If I were in an advanced country where I know the government is not corrupt and is working for my betterment, I wouldn't mind paying taxes at all. As long as the politicians aren't pocketing your money, what is wrong with paying taxes???


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## pcrial (Sep 27, 2010)

*Paying Taxed*

It wasn't about paying taxes, or even about whether money is needed for infrastructure (clean water) or anything. It was about how the ever expanding money appetite for governments cause them to consume their own economies.

I understand about Pakistan, and really many other countries have the problems you describe. Once the country is developed, governments continue to levy one tax after another, until they consume their nation's economy.

The UK has gone from the world's greatest power, to where it is today mainly because of taxation. The USA is following the same exact path. It is said to have one dollar in the US, you must earn $2.04. The US government is consuming more than 1/2 the total resources of the country. The US national debt is increasing at the rate of $3 million dollars per minute. How long can the USA support that?

Yet, every word from Washington DC is about increasing taxes on an already overburdened economy.

That is what I was discussing. Once governments become successful, they turn on their own population, then bankrupt their own economies, by taxes. Sorry leptokurtic, I didn't mean taxes are bad. Rather over taxation and it's devastating effect on economies.

Cheers,


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## jm21 (May 4, 2011)

pcrial said:


> The USA is following the same exact path. It is said to have one dollar in the US, you must earn $2.04.


Who says that? The problem is that in the US the non-self-employed middle class pays far more than their fair share of taxes because they're held to some sort of standard. 

I'm self-employed, probably made about $40k net profit last year which puts me in the middle class for my area. With "creative accounting", corporate tax loopholes, and all the gray area in the tax code I paid about $400 (total) in income tax, social security, and medicare/medicaid. Please note that I was filing as single with no children or I probably would have been given money by the government instead of paying taxes. I then paid about 9% state sales tax on non-essential items (filet mignon is essential and not taxed, whereas hot pockets are non-essential and taxed, for example). One of the larger taxes I paid was sales tax for buying a car, but since that was a corporate vehicle I got to write off both the price of the vehicle and the sales tax on my federal taxes. Property tax was the biggest at about $1,500 per year and there's not much avoiding that one (2bd/2ba waterview home). There's a state business tax of 1.5% of gross profits which woudl have been $1,200 or so for me, but it's so pathetically unenforced and relies so much on self-reporting that again, not much there. I was busy and forgot to pay it and no one ever bothered me for it. 

Compare that to my dad who was in the midst of retiring to my state and working part time telecommuting to a job in a neighboring state. He had to pay full federal taxes on what he earned, state income tax (the neighboring state had a 9% state income tax) as well as the state sales tax on non-essential items because he was buying his groceries and household goods near where he lived. The total tax on his salary was about 50% whereas mine was about 2%. Very similar actual incomes.


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## Guest (Aug 24, 2011)

You have hinted at the core reason behind the downfall of the US and the UK. It's wrong economic policies that have nurtured greed and corruption amongst the banks such that at the onset of the 2008 meltdown the economy was literally standing on chewing gum. Plus, at least in the case of the US, I do believe there has been some corruption. I remember reading this somewhere (can't remember where) that a government biggie once said on CNN that each cruise missile costs $500000/- because of a lot extra costs. The comment caused an uproar and then the government cut it down somehow to $25000/- Don't know how true this is, but government kickbacks to cronies play a large role in the 'big economy' that has become a burden.

But at least in the case of the US government, the debt is justified. You see, if the US government is not taking debt, it means it is taking a profit. Which means there is a net influx of dollars into the US and the government's coffers. Which means that the rest of the world is losing out on dollars - the lifeblood of today's economy. Which does NOT bode well for the world economy. This has been the self-eulogizing claim of the US ever since the World Bank/IMF system was set in place and the US tricked everyone into accepting the USD as the essential currency of the world.

Today it is just a case of too much debt. The government can give any number of arguments to save its ass. But the reality of the situation is that they need money to pay off the debt and bring it to acceptable limits. One of the ways is taxes. No one is saying the economy will become better because of taxes. Rather, if spent well, they will ensure that the economic might of the US goes unchallenged otherwise one of the major control of the US government over the world economy - the USD - is at risk of being lost. It's your choice.


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## pcrial (Sep 27, 2010)

You are not counting all the taxes you pay in the price of the goods you purchase.

Like when you bought that new car 2/3 of the cost was tax rolled in to the price of the car. Plus, once you bought it, you paid sales tax on the whole amount including the 2/3 that already represented taxes.

The tax situation is very complex. To calculate the total taxes you pay, you must, first find and discover all the hidden taxes, because you are taxed on the income, as well as when you buy things. You used only federal income tax for your example, but you also probably paid state income tax, and in some cities, city income tax. Then everyone pays sales tax on the things they buy, plus the taxes of the wages paid the workers is part of the production cost of the goods produced, therefore a percentage of the price of all goods is to cover the taxes already paid, therefore those taxes are passed on to you.

Suppose I'm a clothing maker. I sell you a shirt. I had some costs to produce the shirt.

1. cloth $1.50
2. thread 25 cents
3. labor $4.00 (the worker pays income tax, so the worker's wage includes his income taxes).
4. profit $10. (actually only $6, because the company pays $4 in tax)

The end price for the shirt is $15.75, but $4 covered the company's tax, and $1 paid the worker's income tax. So the shirt already has taxes buried in the price of the shirt.

There have been some very good research materials written about this phenomenon showing when you buy something you are already paying a large tax, perhaps 25 to 75% of the total purchase price, then sales tax is computed on the total so that you are paying compound tax. On cars, the numbers are much worse, because the tires, were made by a rubber company, the mirrors and glass were made by another, and the car is just an assembly of thousands of parts made by many companies, each of which have already priced their taxes into the cost of their goods.

The only way to pay no taxes is to have no income and buy nothing. If you have income and buy things then you pay lots of taxes, some up front like income tax, and many hidden taxes.


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## jm21 (May 4, 2011)

pcrial said:


> You are not counting all the taxes you pay in the price of the goods you purchase.


That is true. Because the quote I was responding to insinuated that it was a tax on what I earned, not what I spent. I included taxes on things I bought as examples. 

There is no state or city income tax where I live. 



> Like when you bought that new car 2/3 of the cost was tax rolled in to the price of the car. Plus, once you bought it, you paid sales tax on the whole amount including the 2/3 that already represented taxes.


I bought a used car. Can you mathematically show me how the taxes factor into the price of a used car? Not only that but there are also subsidies, especially for hybrid/electric cars. How are those subsidies taken into consideration? And how are they spread across the profit margins of a car manufacturer? Let's assume 2/3 of their regular car price (is this invoice, MSRP, or cost to manufacture?) is taxes, but then perhaps 2/3 of the cost (again, perhaps invoice, MSRP, or manufacturer's cost) of their hybrid or electric model is tax credits and subsidies. There is no simple equation. 



> 4. profit $10. (actually only $6, because the company pays $4 in tax)


They need to move or fire their accountant. No one with half a brain pays that amount of tax. 40% of their profit to tax? Are you kidding me? That is just laughable. 


Now I am shocked at the amount of tax I pay on gasoline and certain other items, but your figures are so far off of reality that I can't help but laugh.


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## pcrial (Sep 27, 2010)

It is a moot point. 

An interesting philosophical discussion. But before you say the figures are wrong, can you mathematically show that the majority of the cost of anything is not tax?

I recently purchased some cables to connect a computer to a TV. At the local Dick Smith electronics store, the cables were $16 to $18 each. I ordered and received the three cables from a Hong Kong supplier via eBay for $6 including shipping total. Are you trying to say Dick Smith electronics is that greedy? If so then why were the cables near the same price at WalMart, on a recent trip to Texas?

5FT 3.5mm Male to Male 3.5mm M/M Audio Extension Cable | eBay

I spent many years and retired from the automobile industry, and the buried taxes explain the price multiples. That is why the USA can not compete on international markets. The Hong Kong company is making a profit at $1 per cable. Yet, all across the USA companies are going broke at multiples of Hong Kong prices. Opinions vary, and reasonable minds may vary, but something explains going from the world's number one manufacturer to the least competitive. I happen to have seen the taxes double and then triple the cost of a car we manufactured, and then watching the companies outside the US take the market away, with cheaper prices. The CEO of a recently bankrupt US automaker, once the world's largest, said the US government is making financial war on us. After he said this, I spent the next 12 years working on moving manufacturing to Mexico. The reason, Mexico manufacturing was profitable, whereas US manufacturing had become uncompetitive.


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## Guest (Aug 24, 2011)

pcrial said:


> It is a moot point.
> 
> An interesting philosophical discussion. But before you say the figures are wrong, can you mathematically show that the majority of the cost of anything is not tax?
> 
> ...


Taxes aren't the only things driving the US towards uncompetitiveness. There is also the fact that the Hong Kong manufacturer probably doesn't need to pay that much attention to worker's rights, environmental laws, corporate social responsibilities and other such attachments which are part and parcel of being a 'first world company'. 

From an academic point of view, the moving away of manufacturing was actually a part of the 'advancement' of the US. Economies are supposed to advance from agricultural, to manufacturing, to knowledge based. Each higher level presupposes that the lower level is taken care of in some way. Manufacturing was kicked on the assumption that it is menial work that doesn't require much creativity. Make no mistakes that the US is still an extremely competitive exporter: of weapons, bombs, planes etc. and of certain computer software. This kind of economy IS what the 'visionaries' WANTED. Unfortunately, somewhere down the line they lost track of on the ground 'low income population' (I am using a euphemism here; you get the idea) and the fact that MANY US kids are too busy in debauchery to have higher aims in life. Not to mention that public education is a mess and higher education is increasingly out of range. Though it seems to be INCREASINGLY within the range of sports stars, who do not provide any exports and just make people 'churn the money around' in the economy.

You guys have a lot to say to your 'visionaries' and 'planners'. So sad that NO ONE is saying anything worthwhile...

And I am soooooooooooo thankful I am going to Australia, complete with its housing bubble or lack thereof (this is how my post is relevant to the topic at hand by the way )


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## twister292 (Mar 25, 2011)

pcrial said:


> It is a moot point.
> 
> An interesting philosophical discussion. But before you say the figures are wrong, can you mathematically show that the majority of the cost of anything is not tax?
> 
> I recently purchased some cables to connect a computer to a TV. At the local Dick Smith electronics store, the cables were $16 to $18 each. I ordered and received the three cables from a Hong Kong supplier via eBay for $6 including shipping total. Are you trying to say Dick Smith electronics is that greedy


Margins. Consider the overhead costs incurred by Dick Smith for example...

Australian retailers have a long history of uncompetitive pricing, and sometimes outright price-gouging. And accessories like cables etc are an absolute cash cow.


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