Browsing articles in "Economics"
Wednesday 19th December 2007 - 12:11 pm
Comments Off on Double standards in the official family

Double standards in the official family

by Alan Thornhill

Where will the Reserve bank chairman, Glenn Stevens, and his high powered board be over the next few weeks, as waves from the US sub-prime tsunami hit Australian markets?

Where do you think? Out on the beach, like other Australians. That’s right, this bold board, which could not possibly hold off a “necessary rate rise” during the recent election campaign – even though that was unprecedented – can certainly do so, if something really important is at stake.  Its own rec leave, for example.

The board, which traditionally meets on the first Tuesday of each month, will be skipping January – this time. It will not meet again till February.

Ordinarily, that would not matter. But the situation, right now, is so serious that the board almost ordered yet another rate rise, earlier this month.

The minutes, from its November 6 meeting, leave no room for doubt about that.

“Members remain concerned about the outlook for inflation,” those minutes, which were published yesterday, said.

“Inflation in CPI and underlying terms was expected to be above 3 per cent in the first half of 2008, before declining somewhat thereafter….” they declared.
“The information available on the domestic economy thus suggested higher interest rates were likely to be required,” they added.

Some months ago, Mr Stevens declared that the board would be prepared to act, to raise rates, during an election campaign, if necessary.  That was admirable.  But what if action should be urgently needed during January?

Does it matter?  On the Reserve Bank’s own published credo, on the issue of urgency, it could.  Besides, just consider a few words from the memoirs of another central bank chief, Alan Greenspan.

Mr Greenspan,  now in retirement, wrote in his book The Age of Turbulence”:I was aware that the loosening of mortgage credit terms for sub-prime borrowers increased financial risk.

“But I believed then, as now, that the benefits of broadened home ownership are worth the risk.”

That position is becoming increasingly difficult to defend.

A New York Times columnist, Edmund L. Andrews,who is no fan of Mr Greenspan, recalls in a scathing article that the Fed had been warned, many times, of the emerging sub-prime mortgage crisis in the US.

But it chose to do nothing.

That article is worth reading.  Its at

Please visit our sponsor
Wednesday 19th December 2007 - 6:12 pm
Comments Off on The Fed – finally – steps in

The Fed – finally – steps in

by Alan Thornhill

The US Federal Reserve has – finally – stepped in to put an end to the shonky lending practices that led to the US sub prime mortgage crisis.

It’s too late, of course.  Most of the operators, who caused the trouble,  either went out of business, or stopped making sub-prime loans, months ago.

As Private Briefing advised earlier today, the Fed. under its previous chief, Alan Greenspan, had been warned of the trouble that was brewing, years ago.  But Mr Greenspan decided to do nothing about it.

However today, Australian time, the Fed issued proposes changes to Regulation Z, to strengthen what it called “truth in  lending.”  It’s statement sought public comment on the proposals.

Critics who will certainly say this is too little, too late, have a very strong case.

However, the Fed’s idea is still positive.  In its own words, that is “to protect consumers from deceptive home mortgage lending and advertising practices.

Both have been rampant, in the United States, over recent years.  The shonky lenders have, particularly, targeted unsophisticated blacks and Latinos, with their deceptive campaigns.

They believed, of course, that even this kind of lending was essentially riskless, because rising property prices would always cover the debt, even if the borrower defaulted.

Severe reverses, over large parts of the US property market, exposed the flaws in that argument.

Now the US Federal Reserve is struggling to keep the entire US economy out of recession.  It has been forced to cut key interest rates repeatedly and to pump billions of dollars into the system, to encourage lenders to lend again.

But markets remain shaky.


Thursday 13th December 2007 - 2:54 pm
Comments Off on “Too many” funds:industry seeks help

“Too many” funds:industry seeks help

by Alan Thornhill

Australia has “too many” investment funds, according to an industry leader, who wants the new Rudd Labor government to  make fund amalgamations easier.

Richard Gilbert, the chief executive officer of the Investment and Financial Services Association, made the appeal at an industry breakfast today

He also offered the Federal government a little assistance, that it might, one day, welcome.

“For a number of reasons, our industry has an excess of financial products,” Mr Gilbert said.

“For example, I am aware of one company that has 1,000 financial products.”

Mr Gilbert said these had  been accumulated not only through mergers and acquisitions, but as a result of changing legislation, as well.

“They say they could work well with, perhaps, just 15 products,” Mr Gilbert added.

He said IFSA is working hard, trying to persuade the government to make legislative changes, that would make product rationalisation easier.

However, he said that had to be done in ways that would not be to the detriment of the remaining investors in a legacy fund.

The present situation, though, is harming investors, already.

Mr Gilbert told of a member company that has a single investor, in a fund it cannot shut down.

“The (cost of the) management, administration and compliance to keep this fund running must be in the order of more than $130,000 a year,” Mr Gilbert said.

Guess who will, ultimately, pay those bills?  That’s right, the investors who play such a critical part in the operation of the Australian economy.

And the help?

Mr Gilbert was also kind enough to point the new Treasurer, Wayne Swan, towards what he called “a proven means” of returning “fiscal surpluses” to taxpayers, without igniting inflation.

“Superannuation incentives are a proven means of transferring public wealth into private hands, but with only minimal inflation and interests rates,” he said.

“The IFSA pre-budget submission will canvass this matter strongly,” Mr Gilbert added.

Your author, a veteran press gallery journalist, would advise Mr Gilbert to speak very slowly and clearly, when he explains this to Mr Swan.  Labor still has very painful memories of the fuss John Howard made, many years ago, when Paul Keating did something like that, with the second tranche of his famous L.A.W. law tax cuts.

Tuesday 11th December 2007 - 10:54 am
Comments Off on What is the most expensive item at your place?

What is the most expensive item at your place?

by Alan Thornhill

That new car in the garage isn’t the most expensive item in a typical Australian home. It might not be the home, itself, either, despite the soaring property market.

Quite likely, it’s the kids. A new study, conducted jointly by the National Centre for Social and Economic Modelling and the AMP, reveals that it now costs a total of more than half a million dollars to raise just two children to the age of 21.

NATSEM’s economists admit that raising a family is one of the most challenging and rewarding things people can do.

“It can bring a lot of joy,” they say in their report.

“But it does come at a high price,” they add.

The 18th AMP.NATSEM Income and Wealth Report draws from a broad range of statistical information to provide an insight into the cost of raising children from birth until leaving home.

It does so for three typical families in low, middle and high income brackets.

This report updates the 3rd AMP.NATSEM Income and Wealth Report released in 2002.

Their conclusion?

“A typical Australian family spends $537,000 on raising two children from birth to 21 years.”

A shock, certainly. However the economists add a word or two of comfort.

“On paper this is a big figure” they say.

“But any perception that it’s getting more expensive to raise children, is off the mark.

“According to this report, the typical family spends 23 per cent of its combined income on the cost of raising children.”

The economists say this is the same percentage as a broadly comparable family in 2002.

Friday 7th December 2007 - 10:13 pm
Comments Off on Australia’s own sub-prime housing stress

Australia’s own sub-prime housing stress

by Alan Thornhill

Sharp rises in housing costs have thrown 425,000 relatively poor Australian families into financial stress.

This is revealed in a new report, just released by the Australian Institute of Health and Welfare.

The Institute confirms that most Australian family budgets look bright, with their gross mid-level incomes rising by no less than 34 per cent, in real terms, over the 10 years to June 2006.

But it warns, too, that Australia is a very diverse country, with a very diverse community.

Its report notes, in particular, that sharp rises in rents house prices, over the past decade, have pushed thousands of families, with relatively low incomes, into severe financial stress.

It is widely accepted, that housing costs produce stress, when they exceed 30 per cent of a family’s disposable income.

John Howard made much of his “battlers.” That was one of his favourite descriptions of poorer Australian families.

The Institute looked at what had happened to them, on Mr Howard’s watch. Massaging figures produced by the Australian Bureau of Statistics, it came to the conclusion that some 425,000 Australian families, with incomes somewhere in the bottom 40 per cent, now spend more than 30 per cent of their income each week, on either rent or home loan repayments.

Default levels, on Australia’s home loans, are still low. That’s because Australia’s banks and other home lenders have been much more careful than their American counterparts, in choosing their customers.

But, if the Institute is right – and there is no reason to doubt that it is – thousands of Australian families are, already, finding it very hard, indeed, to keep a roof over their heads.

The Institute reports, for example, that almost half of all Australian families, in this income range, who rent privately, now pay more than 30 per cent of their gross income to their landlords each week.

That might well have had something to do with the outcome of the Federal election on November 24. The result, in fact, might well be seen as the battlers’ revenge.
The report, the latest in a series published every two years, is close to essential reading for financial advisers.

Its available at The data on financial stress is in table 8.5.

Wednesday 5th December 2007 - 12:03 pm
Comments Off on Sharp jump in incomes

Sharp jump in incomes

by Alan Thornhill

Australians have more spending money than ever,with net disposable incomes rising by 5.1 per cent over the past year.

That seasonally adjusted figure, comes fromthe September quarter national accounts, which the Australian Bureau of Statistics released today.

It is just one of many in the national accounts which will worry the Reserve Bank, which only just held off raising rates, yet again, earlier in the day.

The bureau said real net disposable income rose by no less than 1 per cent in the September quarter alone.

But isn’t that a good thing? Well, yes, mostly.

However big surges in income can produce problems, particularly when there is little spare capacity in the economy, a situation the Reserve Bank, itself, says applies now.

The bureau also reported that the Australian economy grew by a quite substantial 1 per cent in the September quarter and by a truly impressive 4.3 per cent in the 12 months to the end of September.

Most economists are now worried that the prospect of the $31 billion in tax cuts, that Labor promised before the election, will encourage even more enthusiastic spending over the coming year.

And they too fear that this could overheat the Australian economy. They are urging the government to find spending cuts, in its own program, to offset that.

The new Finanance Minister, Lindsay Tanner, has promised to do that. His boss, Kevin Rudd, has already promised to take “a meat axe” to wasteful spending in the public sector.

The bureau’s figures also confirm that this is now close to an urgent necessity.

They show , for example, that final consumption spending rose by 1.2 per cent in the September quarter and 3.7 per cent over the year.

It is capital spending associated with the mining boom though, that is really driving the Australian economy. Although it eased by 0.3 per cent in the September quarter it rose by no less than 10.6 per cent over the year.

see for more

My book

wx 2

Weathercoast by Alan Thornhill

A novel on the murder of seven young Anglican Christian Brothers in the Solomon Islands.

Available now on the iTunes store.


Alan Thornhill

Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.

Please visit our sponsor
Please visit our sponsor


News Archives