Suggestions to fix the economy...

[Stav]

I got to thinking as I went for a long walk today as to why theeconomic times are tough..Having studied business /commerce /accounting at tafe as well as having passed a semester of law at Sydney uni I believe that I have a good idea to get this economy back on its feet.

Firstly the economy has been demised some 24 months ago by govenrment constraints/taxes on the housing market. These land taxes and restrictions brought a stop to rising home prices and a close to collapse in the building industry.Building approvals plumeted as investors pulled their funds out of property because of this. All levels of government literally pulled the rug out from out of the mum and dad investors and then used their open market operations via the reserve bank by raising interest rates .The repossessions went up,people were losing their homesAs a result many Australian families were pushed to financial ruin and bankruptcy. The repurcussions of this was well documented on current affairs programs and media.
I believe that the stimulus package is not effective due to the general handout nature of the execise.

If these politicians and leading economists were serious about stimulating this economy back to a good level that they must stimulate the housing market.This is the main reason for existng problems here .The global market problems have compounded this.Despite the global economy banks have still posted record profit amounts and so it leaves the educated economist wondering why? The answer is quiter simple..they are not affected by the so said crisis and are milikng the average mum dad investor as far as possible.

The solution to fix these problems is not handouts because it does nothing to get the primary problem fixed...housing. The solution to fix this economy is to abolish capital gains tax and reduce if not eliminate stamp duty on sale of property. This in turn would inject hundreds of millions of dollars into the economy and kickstart a healthy cycle of spending and consumer confidence.
The goal of raising interest rates was to control inflation...it has done such a good job that its stuffed the economy..but maybe if they read my post here maybe theyll do something that works instead of pussy footing around.

[King Nothing]

Originally Posted by Stav

I got to thinking as I went for a long walk today as to why theeconomic times are tough..Having studied business /commerce /accounting at tafe as well as having passed a semester of law at Sydney uni I believe that I have a good idea to get this economy back on its feet.

Firstly the economy has been demised some 24 months ago by govenrment constraints/taxes on the housing market. These land taxes and restrictions brought a stop to rising home prices and a close to collapse in the building industry.Building approvals plumeted as investors pulled their funds out of property because of this. All levels of government literally pulled the rug out from out of the mum and dad investors and then used their open market operations via the reserve bank by raising interest rates .The repossessions went up,people were losing their homesAs a result many Australian families were pushed to financial ruin and bankruptcy. The repurcussions of this was well documented on current affairs programs and media.
I believe that the stimulus package is not effective due to the general handout nature of the execise.

If these politicians and leading economists were serious about stimulating this economy back to a good level that they must stimulate the housing market.This is the main reason for existng problems here .The global market problems have compounded this.Despite the global economy banks have still posted record profit amounts and so it leaves the educated economist wondering why? The answer is quiter simple..they are not affected by the so said crisis and are milikng the average mum dad investor as far as possible.

The solution to fix these problems is not handouts because it does nothing to get the primary problem fixed...housing. The solution to fix this economy is to abolish capital gains tax and reduce if not eliminate stamp duty on sale of property. This in turn would inject hundreds of millions of dollars into the economy and kickstart a healthy cycle of spending and consumer confidence.
The goal of raising interest rates was to control inflation...it has done such a good job that its stuffed the economy..but maybe if they read my post here maybe theyll do something that works instead of pussy footing around.

I don't believe that continued rising home prices is sustainable. The rate at which prices rose was insane, and it doesn't take an economist to figure that out. As an aside, the NSW state government wasted the opportunity. They had a massive influx of cash, and what have we got for it? Roads that cost a fortune to use, and are undersized before they are completed. Now they are broke. One of the worst case of mismanagement I've seen in a government.

Anyway, the rate of price rises was not sustainable. Me and my fiancee could never hope to afford anything larger than a 2 bedroom unit in Sydney safely. And by safely I mean that if only one of us is working. We both earn pretty decent wages as well. So if the two of us, who combined earn way over the average household income, cannot afford the average house, then how can prices continue to rise at the same rate?

There is no way the state gov. would abolish stamp duty or capital gains tax. They are already behind in the budget due to falling house sales and prices. And this in itself is also a type of handout. It is no different to giving $14k or $21k to first home owners and waving the stamp duty.

An idea that came to me now would be for the government to release large areas of land, and subsidise the builders. That way there would be very large investment by people buying the new houses (at a lower price), the houses being built, houses being furnished, and the associated increased use of public transport in these areas. This in turn would lead to larger infrastructure projects such as new motorways (of course with a toll, as they all are : ), new rail lines, buses, etc. I'm sure that there is a million and one flaws and problems with that idea, but to me that would see a greater amount of money flowing through the economy, both from the government and from the public.

[tempest]

Originally Posted by Stav

All levels of government literally pulled the rug out from out of the mum and dad investors and then used their open market operations via the reserve bank by raising interest rates.

Governments, be it local, state or federal, DO NOT have any control, influence or anything over the official cash rate. The OCR is purely determined and implemented by the RBA - which of course is fully independent from the government.

Originally Posted by Stav

Despite the global economy banks have still posted record profit amounts and so it leaves the educated economist wondering why? The answer is quiter simple..they are not affected by the so said crisis and are milikng the average mum dad investor as far as possible.

Purely untrue. Banks must remain profitable. Australia's banks (big 4) are in extremely strong positions relative to various overseas banks - inter bank lending has not ceased and will not cease, and funds are readily available from global capital markets. This is due to the big 4 banks strong capital positions and profitability. IE - a healthy bank is a bank that runs a healthy profit and maintains a strong capital position.

Ppl question and critisize the banks for not passing on the full interest rate cuts....they cannot. Basically, the supply of overseas funds to the banks is still there due to their strong positions, but the cost to them is greater than before - this is reflected in the gap between bank lending rates and the OCR.
Remember the OCR is only the rate at which banks can lend/borrow at between themselves (overnight), not the rate at which the source their funds.

Our big 4 are some of the most highly rated banks in the world. Australians should be proud of the state of our financial sector, and be thankfull we are not in a world of crap like most of the western world.

[DoreSlamR]

Originally Posted by tempest

Governments, be it local, state or federal, DO NOT have any control, influence or anything over the official cash rate. The OCR is purely determined and implemented by the RBA - which of course is fully independent from the government.



Purely untrue. Banks must remain profitable. Australia's banks (big 4) are in extremely strong positions relative to various overseas banks - inter bank lending has not ceased and will not cease, and funds are readily available from global capital markets. This is due to the big 4 banks strong capital positions and profitability. IE - a healthy bank is a bank that runs a healthy profit and maintains a strong capital position.

Ppl question and critisize the banks for not passing on the full interest rate cuts....they cannot. Basically, the supply of overseas funds to the banks is still there due to their strong positions, but the cost to them is greater than before - this is reflected in the gap between bank lending rates and the OCR.
Remember the OCR is only the rate at which banks can lend/borrow at between themselves (overnight), not the rate at which the source their funds.

Our big 4 are some of the most highly rated banks in the world. Australians should be proud of the state of our financial sector, and be thankfull we are not in a world of crap like most of the western world.

Totally agree the banks aren't the ones that need the stimulating.


Now what I'm about to write is my personal opinion on the way I see things, I haven't studied economics or anything like that so please, correct me if I'm wrong.

Our problem is exports, I'm only going to focus on iron ore because it is one of Australia's larger exports. Our biggest buyer is China, they buy it, they turn it into steel rolls then they sell it back to us for a ridiculously high price. They also sell it to the USA, who are their largest buyers. The USA is, as we know in big trouble, so they stop buying steel. (amongst other things) That means China needs to slow production down because they've lost buyers. So of course our iron ore exports have dropped off, meaning job loss which we're already starting to see.


How do we fix it?

I see two ways
1) We build our own steel manufacturing plants. doesn't have to be anything major, maybe one big enough to supply steel to our car manufacturers. This also creates more jobs and stimulates the economy. Whilst removing the cost of buying it back from China.

2) We hope China does something about their economy, I was thinking that if the Olympics were on next year, I doubt China would be having a problem right now, plenty of work and lots of projects.

I'm doubtful though, that China will do much about it. This article HERE is setting off a few alarm bells.

First, Tao Shoulong burned his company’s financial books. He then sold his private golf club memberships and disposed of his Mercedes S-600 sedan.

And then he was gone.

And just like that, China’s biggest textile dye operation – with four factories, a campus the size of 31 football fields, 4,000 workers and debts of at least $200 million – was history.

“We’re pretty much dead now,” said Mao Youming, one of 300 suppliers stiffed last month by Tao’s company, Jianglong Group. Lighting a cigarette in a coffee shop here, the 38-year-old spoke calmly about the bleak future of his industrial gas business. Tao owed him $850,000, Mao said, about 60% of his annual revenue. “We cannot pay our workers’ salaries. We are about to be bankrupt too.”

So I personally feel there's ways to fix it, we just need the PTB to pull their finger out before it's too late.

[chevypower]

If the media reported more optimism towards the economy, more people would probably be out there investing and spending. The more doom and gloom people hear and read, the more people will hold off and wait for it to fix itself.

[guzzis3]

Boy Stav, you couldn't have studied economics very hard. Did you pass ?

Some of us have been through these economic cycles before. The long term average house price is about 3.5 times average income. The average wage now is about $60k, so the average house should be $210k. At the moment it is about 7 times nationally or about $400k. That is why some commentators are speculating house prices will fall another 50%. They almost certainly won't, but a further fall of 20% is quite likely. The reason home prices got so far ahead of income was credit at interest rates well below historical average, combined with pressure on financial institutions to build profits through less and less stringent loan conditions.

Couple of other things. Cost of coaking coal and iron ore has tripled since 2000. Government takes about 40% in taxes and duties. China does not make huge profits making steel, onfact bluescope or onesteel (I forget which) has had it's fingers well and truely burned opening steel making facilities in china. Only about 30% of their GDP is exports.

The fact is we're due for a downturn. IF the government manage their war chest well we won't have a recession and the downturn will be mild. While I agree with spending and borrowing to sustain the economy so far the details of the Rudd governments capital allocations are at best questionable. I can not help but wonder if their understanding of the economy and financial system is much better than the many armchair experts on the internet.

Anyway...

[EgoFG]

Hmmm the topic is "Suggestions" - Is there a need for the personal slugs ?


IMHO:
The state of the economy is determined almost exclusively by expectations. And the most influential expectations are those of the large financial institutions, and other large economic players.

Optimism is really the only thing that will fix it.


The Governments role is to legislate and arbitrate in an effort to control these big 'players'.
The problem with that is that some of the 'players' operate largely outside the span of control of the government. And as such the government needs to grow the neddies to excersise the control it does have.

Generally speaking most governments fall short of this, and this is because they have more than 1 agenda. They are also concerned about international politics, piddling in pockets, and getting elected. The Art of government is to balance those.

I think the downfall of decades of Australian government is to move Australia to being an international country, at the expence of it self sufficiency.

A partly fictitious example:
Australia has canned fruit company operating profitably. Aust Made Aust Owned
An 'international' company from another country takes an opportunity to purchase the australian company.
It starts to import some new products under the Australian Label.
It then starts to blend Au and foreign fruit in the previously Australian products.
Because it shops on an international market, it notices that it can get fruit cheaper, partially processed from anoth country, it stops purchasing Australian fruit, but remains an Australian cannery.
The company it purchases the fruit from, relocates to a low cost country and offers to can the fruit as well.
Australia's Fruit growers all sell their farms to buy a playstation 3.

What could have been done ?

1) Control the purchase of the Australian fruit company, insist that certain 'key industries' remain majority Australian controlled eg - restrict any non Australian company from buying into an Australian company if that purchase would mean greater than 40% foreign control.

2) control tariffs and duties and quotas such that the company could only source a specified percentage of inputs from overseas. - Say 50% (interestingly this would rule out the 'Australian' holden commodore)

3) control the national balance of Australian companies operating offshore, and foreign companies operating in Australia

The trouble with any suggestion like this is that it will restrict foreign investment in australia, and make the australian dollar depreciate !


Hmmm ... maybe since Australia is such a small economy on an international scale we should stop trying to ride the horse, and just be happy if we dont get bucked off !
That is the same as saying "blow finding a solution" and accepting that proposition that "we're due for a downturn."

[guzzis3]

Fair point. I should have put a smiley on that.

Another option would be to force the manufacturer to clearly label the % local content, and specifically in the case of fruit enforce our quarantine laws properly.

I'm not convinced foreign investment in real businesses affects our exchange rate. Our exchange rate is driven by our real exports and by our interest rates.

I'm not convinced total sef sufficiency is necessary or particularly smart, however I'm not convinced w*r'ng ourselves to globalisation does us any good at all either.

There are no simple solutions, and as you say it's usually a question of balance.

[EgoFG]

Originally Posted by guzzis3

Another option would be to force the manufacturer to clearly label the % local content

I love this Idea, it is a long time pet of mine.

And it should extend to the Automotive Industry !
And to be fair should include advertising costs, and management, and sales chain, based on RRP.

I am probably more passionate about this, because I am pretty confident Falcon would have a significantly higher % than Commo

[irlewy86]

Originally Posted by EgoFG

Hmmm
I think the downfall of decades of Australian government is to move Australia to being an international country, at the expence of it self sufficiency.

When has Australia been self sufficent. For decades we travelled on the coat tails of the UK and its only been in the last 30 years we have reached out to Asia and other markets on a decent scale?

[guzzis3]

In the 70's we made nearly everything we needed domestically. We exported a lot more than we imported. How exactly were we on the coattails of Britain ? We didn't owe them much money, and apart from head of state were totally independant.

If your referring to Menzie's unnatural anglophile affliction that's politics, not economics nor sociology. We were no more, and perhaps less, on the coattails of britain than we now are regarding the USA.

[EgoFG]

Originally Posted by irlewy86

When has Australia been self sufficent.

I think it was pretty close 300 years ago.
But in the modern world you have to accept degrees of self suffiency

[Stav]

Some true and good comments there all. Fact is that house prices had gone very high and overinflated by the upturn in the property investment cycle..as with everything what goes up must come down. Wages have not kept up with inflation and abiltiy to buy a house for many home owners. I remember studying at school that we needed a stronger manufacturing sector to be more world competitive ..Has anyone in power tried to do this?

I have to disagree that our banks have are in danger with the profits they have posted. Even Ross Symonds Aussie homeloans passed even lower interst rates than the banks. Right now homes are alot more affordable as interst rates continue to decline. Westpac have even run radio ads stating that they are unaffected by the global situation in those same words.

Yes I did fail to make the observation that we need a alot more wages to buy a house than in the past..Sorry that I didnt post that. But its a good discussion thats getting quite a few points out there..I am still learning as all of us...

[irlewy86]

Originally Posted by guzzis3

In the 70's we made nearly everything we needed domestically. We exported a lot more than we imported. How exactly were we on the coattails of Britain ? We didn't owe them much money, and apart from head of state were totally independant.

If your referring to Menzie's unnatural anglophile affliction that's politics, not economics nor sociology. We were no more, and perhaps less, on the coattails of britain than we now are regarding the USA.

Of course that seems the case, however none of the regulated industries were able to compete globally.

[vztrt]

Originally Posted by EgoFG

I love this Idea, it is a long time pet of mine.

And it should extend to the Automotive Industry !
And to be fair should include advertising costs, and management, and sales chain, based on RRP.

I am probably more passionate about this, because I am pretty confident Falcon would have a significantly higher % than Commo

Yeah, problem is an aussie company supplies Ford but gets the parts from China and its considered Australian sourced part.

[Tha Jack]

Keep your eye on your own finances. No one will keep you out of the hard times ahead except yourself. Thank goodness my wife is an accountant and on the ball. That is all I have to say.

[rodderz]

Originally Posted by chevypower

If the media reported more optimism towards the economy, more people would probably be out there investing and spending. The more doom and gloom people hear and read, the more people will hold off and wait for it to fix itself.

Have to agree there, everyone watches the doom n gloom stories on Today Tonight and then they go and hide in the cave with their money tin and bread and water. As long as people are sensible, which may not be as different as the way they live now, they should be ok.

[DoreSlamR]

Seems my second option is coming to fruition, Just saw on the news China have injected $900B to stimulate their economy.

[mik]

Originally Posted by guzzis3

In the 70's we made nearly everything we needed domestically. We exported a lot more than we imported. How exactly were we on the coattails of Britain ? We didn't owe them much money, and apart from head of state were totally independant.

If your referring to Menzie's unnatural anglophile affliction that's politics, not economics nor sociology. We were no more, and perhaps less, on the coattails of britain than we now are regarding the USA.

agree with this post, is the term market economy that has put us in the ocean with the sharks? i don`t know, one thing we can probably all agree on the cost of living has shot up over the past 20 /25 years , our living standards have gone up as well , i know we need taxes for variouse reasons but i liked it better when the government was in debt and most of us saved for what we wanted and we were taxed less, hands up all those that buy with a credit card because on occasion we have to (guilty).
in my book there are to many demands on the pay packet for all concerned and too many over the top government charges, if you charge $13000.00 to register a truck most would say the only way for them to survive is to put prices up.......up goes food, housing materials, anything relying on transport, that`s only one example, some of these charges are ridiculouse, the tax on fuel 50 cents in the dollar, is that inflationery....i think it is, too me it seems simple reduce some of the cost`s for industry transport is a good place to start, how about dropping the gst down to 9%, i`m only a dumb ex trucky but that seems a place to start, all government bods to fly economy class no 5 star junkets , lose some of the over paid fat cats in government ......Mik for pm .

[dave289]

Sack 90% of the time wasting, useless politicions and all these stupid parties with all the non stop and never ending rorts that go with their job.massive amounts of pay for the rest of theirs lives to sit on their butt and acheive nothing. that should save a few billion a year. THE NON STOP PERKS AND RORTS OF THESE PEOPLE IS BEHOND A JOKE. I say bring their wages, super, and benefits in line with the rest of the average australian workforce as they are doing a less than average job.

[charles_wif_xf]

The only way to fix the economy is to peg the currency to the economic output of the nation. You want more money, you make more things within this wide brown land. Eliminate the concept of interest and thats the job done.

[HLC]

i hope houses stay cheap as i want to buy within the next 6-12 months lol