Australian Property Market, Everythings Fine Till It Isnt

Here in Australia much like others in the rest of the developed world we are told that our economies is different and our asset prices will continue to grow irrespective of world wide economic turmoil. However what separates Australia from the rest is our media, economists and politicians are still on message that everything is going to be fine, when quite clearly it isnt. The way the current situation mirror's that of the U.K and the United States  is truly unnerving, economists and politicians in both those nations spruiked their nations economies as they sunk beneath the waves of government debt, personal debt and asset bubbles. Now Australian economists and politicians are like the band of the Titanic, still playing the same tune as the economy sinks and the housing bubble begin to pop.

When Australian economists discuss the economy we hear about how the mining boom is driving the economy ever higher, how migration makes our property market impervious to losses and other drivel with varying degrees of importance and relevancy. Basically how our economy is fundamentally different to all those other failed one's in the rest of the Western world. While not all this data is completely irrelevant it fails to see the bigger picture, we are running the same economic system as the rest of the Western world, we have have high migration figures like the U.K and we personal debt so high that it makes that of the U.S seem not so bad. In spite of all these similarities the propaganda machine keeps on spitting out newspaper article after "investigative report" every other day to reassure the public they didn't make a mammoth mistake buying that new car and that horribly overpriced house all on credit, or at least they did until now.

However a propaganda machine can only go on for so long, we have reached the economic equivalent of when the Iraqi  information minister was claiming there was no invasion of Iraq by the United States even when an American tank could quite clearly be seen across the river right behind him. Some news agencies are changing their tune, with some claiming they saw it all coming years ago despite years of articles lauding the Australian property market as the best in the world.

The myth that property doubles every 10 years and never goes down is finally busted. See chart

(the above chart was taken from a Macrobusiness article)

This is only the beginning of the slide in Australian housing prices, whether we have period of stagnation or a U.S style crash one thing is for certain they are going down and certainly not up.

After reading many of the insightful posts and comments on the Macrobusiness blog, it once again becomes abundantly clear that asset bubble's while influenced by economic and political factors are ultimately a result of psychology and the fear of missing out. This fear of missing out has been played upon by the media in Australia for the best part of 15 years, from the 'Rent money is dead money campaign' of the late 90's to the constant articles about first home buyers fear of being priced out of the market forever with the message of buy now or you'll never afford it.


In the current climate however this has fundamentally changed the media are beginning to publish articles that point out a falling market, however they still maintain the articles that there is no better time to buy and that this lull in prices is just a temporary setback. Even David Koch from channel seven's Sunrise program has expressed his concern that the property market has reversed direction. The general Public still believes in the myths of the property market in spite of growing media coverage to the contrary, if they would take the time to look at the data they would realise where exactly the property market was at and where it was going. Some friends and I have a running joke,that a great many people will only realise how buggered the property market truly is when Tracy Grimshaw tells them about it on 'A Current Affair'. Then it will truly be myth busted.

Donald Trump for president?

Donald Trump recently tied in a poll for the Republican presidential candidacy, Trump along with other presidential hopeful Mike Huckabee both polled 19% with Sarah Palin a distant third with 12% of the vote. The question is, is Donald Trump really a viable candidate for the presidency?

Trump is currently attempting to paint himself as the white knight of U.S politics the reluctant candidate who is running purely out patriotism and love for his country, giving straight answers to questions, not beating around the bush and claiming he will get things done where others have failed. So far at least among Republicans and Republican leaning independents this image is resonating. His roots in the business world that would of once spelled the death knell for a potential political career are suddenly virtues in an economy where politicians and economists even those in the White House are perceived as not grasping the depth of the current economic turmoil. The media once said that Ronald Reagan could never be president and Arnold Schwarzenegger could never be governor of California, they were wrong, in everything especially politics anything can happen.

With so much momentum with the Republican party currently and the Obama administration almost constantly under political siege there has never been a better time for a man like Trump to "throw his hat in the ring", where once he would of been laughed off the political stage he is being taken increasingly seriously in the race for the White House.

The ability for a man such as Donald Trump to be taken seriously for the presidential candidacy is largely thanks to the current administration which is perceived as ineffectual and weak by both sides of the political spectrum. The Obama administration ran their campaign on the message of change and little to no change has actually occurred, Guantanamo Bay is still open, Health care is still deeply unaffordable and out of reach for many Americans and the United States is still at war in Iraq and Afghanistan. It would be unfair to heap all of the blame on the White House, because in actual fact there is plenty of blame to go around on Capitol hill. The Democrats had a historic opportunity to ram through some real game changing legislation like true universal health care and ending the fiscally irresponsible tax cuts to the incredibly wealthy while they were in control of the house and senate but for some inexplicable reason they chose not to do so.

Trump recently said the following about Libya.
"Look at Libya. Look at this mess, we go in, we don't go in, he shouldn't be removed, we don't want to remove him, we don't want to touch him, but he should be removed. Nobody knows what they're doing on Gaddafi. I'd do one thing. Either I'd go in and take the oil or I don't go in at all. In the old days, when you have a war and you win, that nation is yours."

And had this to say on the issue of China.
"If you look at what China is doing, they're stealing our jobs, they're taking our money. They're then loaning our money back. It's amazing. They're making all of our products. They are also manipulating the currency that makes it almost impossible for our companies to compete with China."

This simple message in black and white will resonate with voters on both sides of politics who are tired of politicians spinning their opinion every which way, some may prefer a straight talking president even if he doesn't say what they want to hear. The aggressive tone of his rhetoric on U.S foreign policy especially towards the economic behaviour of China may be very successful in winning votes in a potential election especially considering the vast majority of politicians try to ignore China's ongoing march toward economic supremacy.

The race for the White House has scarcely begun and two things are certain with people like Donald Trump and Sarah Palin in the mix it will be very interesting and secondly Saturday night live will have a field day.

Middle class welfare coming to an end in Australia?

I have never really understood some citizens of the United States and its governments opposition to a balanced welfare system, where the out of work get enough money to live on till they find another job and people who need health care will have it provided to them free of charge. But today I find myself somewhat understanding their sentiments, while I don't agree with their perception of a welfare system what I do agree on is the fact that people who don't need welfare payments shouldn't have them. But I digress this particular piece isn't about the welfare system of the United States that's a whole nother story, this particular article is about the beginning of the fall of middle class welfare in Australia.

Largely thanks to the current economic climate both domestically and internationally the Australian government is rethinking the welfare system in an effort to save money and balance the budget. Of course proponents of stronger conditions for welfare payment recipients are applauding the governments efforts, I however have quite mixed thoughts on the issue. On one hand there are average Joe's just scraping by on the quite frankly pittance they receive from the government which currently stands at $237.45 per week but on the other hand the government is considering taking away the up to $7500 per child, child care rebate from couples earning over $150,000 per year.

To give those unfamiliar with Australian rent and food prices a bit more perspective the median rent for Melbourne (Australia's second largest city) is $360 per week, so even if a recently unemployed person moved in with a friend in the average Melbourne residence they would still only have $115.65 per week to live on after government payments for proving assistance with rental expenses. Simply put not enough for an individual to live off of especially if they have previous financial commitments like loans or contracts for services for example a mobile phone plan.

Now for the scary part, families in Australia are claiming up to $7500 per child regardless of whether their income is $30,000 per year or $300,000 per year. I am all for families being compensated in some way for their child car expenses especially considering they are not tax deductible, but to give every family with a child in care in Australia such a large sum of money irrespective of income is fiscal insanity. The most shocking thing about this issue is the backlash from these families who are allegedly struggling to make ends meet. For example a family with 2 children living in one of Australia's wealthiest suburbs were complaining about not being able to renovate their house if the rebate is taken away, I'm sorry but if your earning $190,000 a year you should be able to afford to renovate your house and then some.

I know this is quite a departure from my usual "big picture" articles but it really gets up my nose the way people who are for all intensive purposes rich complaining about not getting government handouts while the average unemployed Australian struggles to get by. It seems I have come full circle, while I understand the opposition to the welfare state from some parts of American politics, I much more strongly identify with those who believe in proving help for the needy and not subsidising the lifestyles of the wealthy.

Libyan Rebels request help from NATO ground forces

Since my previous article the strategic situation in Libya has changed dramatically. After the miraculous defence of Benghazi by rebel forces ,the rebels pushed back Gaddafi loyalist forces out of the area for NATO aircraft to strike without fear of collateral damage and civilian casualties. After the initial "shock and awe" attacks by NATO air forces destroyed loyalist armour and aircraft out in the open, the situation on the ground quickly deteriorated for Libyan rebels. After a strong counter offensive by the rebels pushing Gaddafi's forces further west with NATO forces proving air support, Loyalist forces quickly reasserted their dominance in both organisation and equipment.

Currently Gaddafi's forces are besieging the Misrata, the last rebel held town in Western Libya. Rebel forces are being pushed back on all fronts in spite of NATO air strikes. This turn of events predicted by myself and a number of military analysts is turning into a disaster for Libyan rebels who were spurred on by NATO air strikes and also for NATO itself with Gaddafi's forces increasingly looking like emerging victorious. Large cracks are already appearing in the rhetoric and political position of NATO nations on the issue of Libya, the U.K and France are calling for more air strikes to be made mostly by aircraft of the United States while other nations are only in favour of the no-fly zone with no air strikes. What is not commonly understood is that only a fraction of NATO members are actually taking part in air strikes, with only 6 out NATO's 28 members are actually taking part in air strikes.

The situation in Libya has show the systemic problems without NATO both politically and within its command structure. Its very difficult for the different nations to decide on a course of action and like in Bosnia, there by not being able to provide any real assistance till its too late for far too many civilians. NATO and the United Nations need to be organisations who should install fear in those who would oppress their people or visit death on civilians and by doing so prevent dictators like Muammar Gaddafi from ever coming to power. Instead of this ideal situation where the people of the world could be free we have largely ineffectual organisations who are only taken seriously by nations not powerful enough to ignore them.

As I previously suggested ground intervention is the only way this war can end without either Gaddafi remaining in power or unacceptable civilian casualties on both sides. Despite earlier calls by the rebels for NATO to stay out of the ground war they are now calling for NATO ground forces to join the fight. 

"This reluctance and hesitation is allowing him  [Gaddafi] to suffocate the city. It's unbearable. It's getting to the point where it's troops on the ground – or it's over. We are so grateful and relieved by the international community's efforts, it's just that they didn't go the extra steps, and that has played into the tyrant's hands.
He [Gaddafi] will massacre the people of Misrata. If a massacre happens, [Nato's] credibility is on the line. Either they intervene immediately with troops on the ground – now, now, now – or we will all regret this. It's murderous and mad, the people of Misrata are paying the price."

The desperation in the language of the rebels shows how dire the straits are without intervention by NATO ground forces and that without help soon the Libyan rebellion will be crushed. Once again I fear that politics and bureaucracy of both NATO and the United Nations will not provide help in time and once again provide too little, far too late.

Too little, far too late - UN forces attack Libya

The U.N security council voted 10-0 (5 abstaining) in favour of a no fly zone over Libya, additionally the resolution also called for "all necessary measures be taken to protect civilians".  In response to this, overnight U.S, French, British and Canadian forces struck at Libya by air and sea. The targets varied from air defences to tanks and vehicles of the Libyan armed forces loyal to Gaddafi.

I was in favour of a no fly zone in Libya, when this conflict began in mid-February but at this point in time I couldn't oppose it more vehemently. Libya no longer requires a no fly zone, as the whole purpose of a no fly zone in the first place was to make the war on the ground more equal and hopefully lead to a peaceful settlement at the negotiating table. Now however Gaddafi's forces are squarely in control of most of the country, the rebel stronghold of Benghazi has either already fallen or could possibly fall within the next 48 hours depending on who's reports are accurate. So that leaves U.N forces enforcing a no fly zone to protect the Libyan rebels who's forces have been all but destroyed.
Had this resolution been passed 3 weeks ago the war would of most likely been over, the rebels would of likely taken Tripoli and ousted Gaddafi all under the watchful eye of U.N air forces above. Now Pro-Gaddafi forces have destroyed the rebels ability to inflict any real defeat on them, Gaddafi's air force destroyed the vast majority of tanks and artillery that fell into rebel hands there by relegating the rebels to fighting at best a defensive campaign. Without that heavy equipment and the momentum bringing more fighters to the rebel cause it is slowly falling apart, fighters are realising the futility of their cause and going home to their families ready however to fight another day when the opportunity presents itself.

What is truly alarming in this situation is the complete lack of a long term plan, right now the plan is to support the rebels and hopefully help them to turn the tide and defeat pro-Gaddafi forces even though at this point it is at best a "Hail Mary". U.N forces are decimating Gaddafi's but to what end? The rebels are no longer in any position to seize power and form a coherent government.

The question then becomes "Well what now?", without a full scale invasion of Libya Gaddafi will now likely remain in power. By enforcing this no fly zone the U.N has essentially all but declared war on Libya and that is something that is very difficult if not impossible to back away from. From a regional perspective you now have an increasingly totalitarian regime in Libya but perhaps more damagingly you now have a United States that is perceived as not being able to take action without the U.N holding its hand.

Personally I think the U.N's most likely cause of action is going to be continue to attack pro-Gaddafi forces and maintain the no fly zone for the foreseeable future. This will allow it to maintain a shred of credibility even though in actual fact it is an ineffectual organisation at best.

I may not be in favour of a no fly zone by itself but as far as the majority of U.N nations invading Libya for the protection of civilian population I couldn't be more in favour. If this invasion was to occur it has to be a joint operation carried out by armed forces from around the globe not like the poorly executed invasions of Afghanistan and Iraq largely carried out by the United States and its allies. This sort of action undertaken by the nations of the world could revitalise the U.N and give it some much needed credibility and more importantly could save the lives of hundreds of thousands of Libyan civilians.

I leave you with the words of Australian foreign minister Kevin Rudd on the actions of the U.N
"Let's look at the UN. Look back to Rwanda: fail. Look back at Darfur: fail. Look back at the Balkans: partial fail. Too late, really. Srebrenica and the rest"

Revolution in the Middle East and the Whitehouse response

Original Aritcle written on 19/2/2011
-------------------------------------------

After the recent protests in Tunisia and Egypt which toppled their respective governments the civil unrest has spread to other nations in the Middle East. Anti government protests have spread to Bahrain, Libya, Iran, Qatar and numerous

other nations in the region. What has been truly deafening is the silence of the U.S during the uprising in Egypt, never did the Obama administration ever have a coherent plan other than wait and see what happens. This simply isn't good enough from a nation that is not only a hyper power but the driving force in the region. In this case doing nothing was worse than backing the wrong side during the unrest, not only has it reduced the United States standing in the region but it's made it seem irrelevant, perhaps even powerless in some peoples opinion to stop the Middle East from leaving its clutches.

This is a wakeup call for U.S friendly governments in Saudi Arabia and Jordan that if the winds of change blow towards democracy and rule of the people they won't intervene in their internal political disputes, something that has been the bread and butter of the U.S State department and CIA for decades. Some political commentators namely British Professor Niall Ferguson have lamented the lack of a "grand strategy" from the Obama administration for the Middle East, suggesting that the administrations only real message was "I'm not George W. Bush love me". And without sounding too much like a individual that wants to prop up dictators he is correct, the U.S needs to choose whether it will back democracy in the Middle East or not otherwise it will be left behind and rendered irrelevant like it was during the uprisings in Egypt. If the U.S backs democracy there is a chance that these nations may still be friendly to the U.S but there is no guarantee especially after a lifetime of interfering in the inner workings of the Middle East for example pre revolution Iran and more or less all policy's concerning Israel. By the same token if the U.S continues to prop dictators it may stabilise the region for the moment and maintain the flow of oil but ultimately lead to even more anti-American sentiment for when these countries finally do have a democratic revolution.

Either way the lack of a "Grand strategy" has severely dented America's credibility in the Middle East from the perspective of both its allies and its detractors. The Saudi king Abdullah backed former Egyptian president Mubarak wholeheartedly by insisting that if the United States withdrew its $1.5 billion in aid to Egypt the Saudi's would make up the short fall as both a show of defiance of U.S policy or their lack of but also of solidarity with a friend and fellow head of state propped up by the United States.

A policy of gradual democratisation in the Middle east supported by the Obama administration could perhaps get the moderates in the region to cool their heels and lead to secular democracy and prosperity across the region. This would win the United States many friends in the region and keep it friendly to the United States into the future. Also this prospective policy may also have the knock on effect of reducing the number of young Muslims to be recruited by terrorist organisations like Al-Qaeda, thereby making the region and the world a safer place.

Unfortunately this policy is impossible for as long the United States unilaterally supports all of Israel's actions even those considered illegal under international law. As I write this article the United States used its veto a UN security council vote to block a resolution condemning the building of Israeli settlements on what the UN considers Palestinian territory.

Until the U.S decides on its policy in the Middle East it's going to continue to seem more irrelevant as more crisis's crop across the region and the Obama administration is unable to come up with a strategy to deal with them in any meaningful sense. The U.S needs to realise it can't have its cake and eat it too after so many decades of doing so, it can no longer prop up dictators in some nations and yet lecture other nations on how they should be democratic. With the advent of the internet and the meeting of minds of not just for instance a couple of dozen people in a Cairo cafe, but millions from across the world. The U.S cannot afford not to act as this rebellion against established regimes in the Middle East uses new media to recruit from a massive pool of disenchanted youths and unemployed adults sick of decades of oppressive rule and economic stagnation. The momentum is with the protesters at the moment and it seems the remaining Middle Eastern nations still under the threat of uprisings are much more likely to turn to the sword than the olive branch to put down the uprising especially if the United States continues its "wait and see" method of foreign policy.

People say Egypt went well for the west but this is a rather short sighted view. The military run Egypt not the people, hardly what you call a successful end to a revolution. There may very well be a chance of a secular democracy but that is far outweighed by likelihood of either another dictator propped up by the military or a government dominated by the Muslim brotherhood which could be a positive or negative force in the region. Whichever outcome actually comes to pass its most likely not going to be a positive for the United States. Any Muslim Brotherhood government is going to challenge the U.s on its policy towards Israel which is going to cause incredible friction between the two nations and that is only one of many issues that may be bones of contention. If the military continues in power they will be aware that the majority of the armed forces are by inlarge  quite poor Egyptians who support the man and woman on the street so they will be ruled by public opinion perhaps more so than even a Western democracy, this can be beneficial when the public call for more jobs or better international relations but when the call in the streets is for instance the destruction of Israel they will be placed between an angry populace wanting its government to carry out its will and the military might of the United States.

People will no doubt say "Tarric well what would of done?" and the answer is simple send several warships to Egyptian ports in the Red Sea and Mediterranean to show the support of the United States for the democratisation of Egypt and I would of also requested access to Egyptian airspace and had 3 or 4 dozen fighter squadrons flying over Tahir square with the colours of the Egyptian flag coming out of the aircraft like at an air show. This along with a clear message from the White House of we want democracy for Egypt and a transitional civilian government without Mubarak and interference from the military. I believe this course of action would of won the United States many friends in the Middle East and around the world. This along with not unilaterally supporting all Israeli actions and actually committing to a equitable resolution to the Israeli-Palestinian conflict would drive the region to a more U.S friendly stance instead of the opposite which is the gradual gravitation of the Middle East towards the growing power of Iran.

Amendment written 26/2/2011
-------------------------------------------
When I wrote this peace Libya's protests were still in their infancy and Gaddafi still had Libya firmly in his grasp. In the last 7 days however the situation has worsened considerably and he is loosing his grip on power quite rapidly. Some political commentators both from Libya and abroad are already calling his regimes demise all but a certainty.

But I digress, this amendment to my original piece is not about the political ramifications for Libya but about the economic ramifications currently echoing around the world and how this and similar events could have on the world at large. Oil prices have spiked dramatically rising by over 10% in the past month alone despite Libya producing only 2% of the worlds oil, the Saudi's have made assurances that they will make up any shortfall yet prices stay high at least for the time being.

If these events that took place in Libya and Egypt were to take place in a country that provided a much larger portion of the worlds oil for instance Saudi Arabia, that supplies over 12% of all the worlds oil the effect on the world economy could be catastrophic. Oil prices would skyrocket forcing inflation higher crippling the fragile economic recovery in the Western world and perhaps even the stronger recovery in fast growing developing countries like China and India.

Stagflation could once again be a reality for the West (Stagflation being low economic growth coupled with high inflation) making an already difficult situation worse. For instance US economic growth is predicted to be roughly 3% and with oil at $100 according to analysts that can knock off roughly 1% of GDP growth, if it were $120 you could knock off 2% of GDP growth. 

With growth stunted by high energy prices and then in turn high inflation the future may not be so rosy for the world if Saudi Arabia does undergo a revolution and does close the oil taps, the worlds volatile recovery would be stunted. The growing political and social divisions may rear their ugly heads with greater force and frequency than they have already on a small scale in both the U.S and in Europe.

This sort of scenario only reinforces my previous point about the Obama administration needing to become pro-active in the Middle East, pre-empting these criseses with talks of democratic reform and also a plan B if there is another round of whirlwind revolutions.

Controversy over Wisconsin Budget Cuts. Is this a preview for the rest of the U.S

The U.S economy at both state and federal level is currently quite precarious compared with any other time in American history. So the news coming out of Wisconsin that there is to be cuts to workers wages by making employees pay more their health insurance and pension premiums is causing quite a stir nationwide. One large bone of contention for the workers is that there will be a curtailing of the collective bargaining rights for most public sector unions thereby  reducing their power at the negotiating table.

Many people are outraged by these cuts and want them immediately rescinded, but what no one has yet provided with their mostly scalding responses is an alternative. I understand that many people find common cause with these employees as many Americans have had to endure pay cuts and layoffs throughout the financial crisis, but the question is if not from public sector pay cuts where does the money to pay back the debt come from?

Even the U.S congressional budget office's plan for the fiscal future of the United States is to run deficit after deficit every year until the year 2083. From both sides of politics there has been no real roadmap back to fiscal equilibrium, only politically based jabs at programs and policy's valued by the other party.

No party or at this point even any powerful individual in either party is willing to even speak about the types of cuts needed to get the budget deficit and national debt under control, even within the next few decades. I'm not suggesting by any stretch of the imagination to get the budget out of deficit by the end of this year or even next but there has to be a long term strategy for returning both the state and federal finances back into positive territory.

I realise what a daunting task and perhaps even politically impossible task this may be for law makers, but it's something that sooner or later has to be done and the longer the nation waits the harder it's going to be and the harder its going to hit the poor and the middle class.

We have become used to these policy's from the days of a booming economy, that generally make our lives better, helped us get paid more or make our taxes lower. But what is becoming alarmingly apparent is that we couldn't afford those policy's back then when you actually look back at previous budget deficits and that we definitely can't afford them now. The hard question for law makers though is which policy's to cut? do they make changes to Medicare, Social security, Defence, Medicaid or all of the above. How can you do something so politically damaging when the peoples first response is to storm the capital building and demand that you don't go through with your policy's?


As of this moment U.S government and state bonds are still seen as a safe haven for investors voyaging the still dangerous financial seas, but if those investors begin to believe that the U.S doesn't have a plan to pay off its debt in the long term investors are going to be much less willing to lend the U.S governments the money to fund these massive public debts thereby creating super high interest rates that would cripple the U.S economy like it has in Greece.

What it really boils down to at the lowest common denominator is lending a friend money, who while they still have a large income they already have other large debts and only pay the interest on those and don't actually pay the money back. I don't know about you but I wouldn't been keen to lend that friend money or go guarantor on a loan for them.

So while I don't entirely agree with the current cuts in Wisconsin I am forced to agree with their course of action because no one has presented another alternative and until someone does there will have to be these cuts into public policy to bide time until either a default on the debt or someone finally comes up with a plan to get Wisconsin and indeed the entire United States back into the black.

I leave you with a quote from Alan Simpson co-chair of President Obama's fiscal commission.

"“There’s only one way to [fix America’s long-term budget problems], You dig into the big four, Medicare, Medicaid, Social Security, and defence.”