hey guys just wondering what your opinion and how australia will be affected if the US go down if if one the PIIGS default? Reason i ask is i was at this real estate seminar yesterday and they were saying Australia will be ok. Reasons were because we have nothing to do or linked in anyway with any of the PIIGS nation. If the US does go down we may be affected a little bit but not that much. They also said in australia house supplies are undersupplied and more migrants are coming over here something like 200,000 last year or so. So they will all need a place to stay. They were saying currently only 2% of the chinese drive cars and is set to increase to 20% within the next 3-5 years so they are going to need to buy more of our resources which is where our biggest export is. I went in with an open mind and have heard from some that once the us goes the whole world goes and now this im unsure of who is more correct? I try to listen to both sides and make up my own decision. At the moment all i can think of is that if the US goes down our prices on resources will go up unless we devalue our dollar so its cheap so the chinese will keep buying. What is your opinion? I'd like to hear different opinions and get both sides of the story from other people who know more than myself.
Resource currencies will plummet in the coming debacle as demand for commodities drops. The hardest thing to get your head round is that, at the same time, they will in fact become more expensive. Demand will remain of course, but the credit market seizure will halt that for a time which will cause havoc for mining investment in Australia. "It's different here" is the most tired argument. The financial world is intimately interconnected. As has been stated here many times, Australia's banks require access to overseas funding to operate. Without it, things will get interesting. Just because Australian banks are not invested in rubbish Spanish real estate, doesn't mean they will be unaffected. It's fallacious and facetious reasoning that's treats the listener like they are an idiot. The people who told you the other side of the story were selling you something; it's in their interest to talk things up.
the real estate spruikers would have you believe that wouldnt they? what have they got to lose if the market cracks? will they be anywhere to be found, I doubt it
im no expert so i could be wrong, my understanding is that the US are printing money like crazy so their dollar goes down against the AU dollar. For the chinese to keep buying our resources we will need to print more money (devalue) to keep it low?? Am i correct? Does it even make sense haha!!
Well, I could be wrong too of course (and many here think I am I'd wager), but I expect a decent rally in the US dollar short-medium term. All the "money printing" is largely actually just providing large banks accessing to funds. It's not as if the average citizen is walking around with way more cash in their pocket. Money supply comprises cash and credit, with credit being by far the larger portion of the two components (roughly 90-95%). The printing of an odd $500 billion in cash while $500 trillion in excess claims to underlying assets are being extinguished means little. Just to be clear - hyperinflation is IMO not on the cards. Not even close. Current trends support this thesis.
I believe this will be the biggest factor against real estate. If the banks experience difficulty accessing funding then it will become increasingly more difficult for real estate investors/buyers to access home loans. It wont matter if we have a housing shortage or a flood of immigrants, if no one can access $500,000 (i.e. cant obtain a bank loan) to buy an average Sydney home then prices will have to fall to meet the market. This has nothing to do with house prices being overvalued or undervalued in Australia. Very few people have enough cash to buy property outright, therefore most require home loans. As access to bank loans becomes more difficult sellers will need to become more accomodating to the prices buyers (those still able to access credit) are willing to offer.
My personal take would be along these lines. Americas debt will eventually bring the US crashing down into a recession or even a depression, this on its own will not affect us hugely, although it will naturally cause panic in the markets. Europe and the Euro can only crumble under the current stresses that they are under with unmanageable debt levels in some countries which in turn are bringing the more respectable and economically secure countries to their knees. There only needs to come into play one Sovereign debt default and the dominos will all start to fall, as the weaker nations crumble under the uncertainty of the union. This in turn will drag down with them the rest, a bit like someone drowning pulling down the person trying to save them, killing them both in the process. But this in isolation would not affect Australia in a big way, like the US failing we would feel the effects but we would not be permanently scarred by the crisis. Australia's problem lies is if the might of China should ever waiver. Here is something to think about; China's two biggest overseas markets, which are driving their mammoth economy are the US market and the European market. As discussed the is an exceptionally high probability that both the US and the European Union as they stand today, will fail, due to their unprecedented debt levels in conjunction with a populace which believe that it is their right to live the unsustainably high life that they currently enjoy, somewhat financially supported by governments which cannot afford to 'keep everyone up with the Jones's'. If (and it most likely will) this ends in a recession/depression in these two parts of the world, where basically they shut up shop to the rest of the world, China will then find itself without its two biggest markets. Then comes the age old rule of supply verses demand. No demand, supply not required, which will in obvious terms be devastating for countries like Australia who are reliant on China for our economy to keep on running. In fact if you were to take it to its obvious conclusion this would be the last nail in the coffin and would turn a world recession into a world depression. And what then? WW3 anyone?
First of all the myth that there is an under supply on housing is not a myth it is a straight out lie. No such thing exists. Secondly around 30% of the Australian housing market is financed from offshore lending. Put simply the interest rates on 30% of all mortgages are decided by offshore banks NOT the RBA. Think about the cause and effect that will have on Australian interest rates not if but when Greece defaults or the next pig is in the cross hairs. Then think about what that will do to the thousands of over leveraged (sub prime) first home buyers that got in, in the last 3-5 years. I find economics a simple cause and effect puzzle that you can simply follow the bouncing ball along from one cause to the effect you are trying to find out. I have given a couple of the dots to connect in your cause and effect, I am sure you can work the rest out for yourself.
Must say i dont get the thrust of your post. on the one hand you reckon that a defaulting Europe and/or US wont affect Australia much, yet on the other hand you concede that it will indeed affect China greatly... yet you accept that Australia is completely reliant on China? Do you not notice the rope tied around China and Australia that joins them at the hip??
Europe or US going down on their own i.e. only Europe crashes and US trades as normal or vice versa will not affect China in a huge way, but if both go down the tube that would be a different story. That rope that joins both China and Australia is more of a neck tie, looks good when things are going well, but can easily be converted to a hangmans noose if the world takes a dive, or whenever China feels like it. Our ties to China are not all a good thing.
But does anyone get the feeling that the possibility of the US falling was much better for us stackers than Europe falling apart?
primaticves raised 7 cases of how Australia is different and will not be effected by the impacts of financial disasters in Europe or the USA, presumably as reasons for investing in real estate at current valuations. I think consideration of each case may shine some light on how fragile our economic situation actually is. So, without arguing the pros and cons of inflation versus deflation, here's what I reckon. 1) we have nothing to do or linked in anyway with any of the PIIGS nation This is not only wrong but naive. Globalisation over the past 20 years has interlinked all economies in ways that are both obvious and obscure. In this case it is obvious that Europe is a significant economy contributing to the global aggregates of both demand and supply and the loss of either or both will have a global impact. The obscure is that a lot of the European debt is insured by American banks and their liability is a significant percentage (about 70% I think) of the debt exposure in Europe, so a financial crisis in Europe will have an immediate impact on the USA. 2) If the US does go down we may be affected a little bit but not that much - American banks and institutions are significantly involved in the Australian economy. You just have to witness the impact on the Australian stock market of a flight to the USD, to see the tie. I also happen to know that some of these American investment banks are the Custodians of record for the investments of some of our Superannuation and Managed funds. If they go down, there will be an immediate and significant effect on the Australian economy. 3) They also said in australia house supplies are undersupplied We know this is a lie by the reports that 50% of new housing developments have been purchased by foreign Chinese investors/speculators. In fact, the Hon. Mr. Swan relaxed foreign investment rules through 2009/10 to encourage Chinese/Foreign investment into the Australian residential sector as one of the means for supporting house prices. Another method they used was increasing the first home owners grant to bring forward demand from potential first home buyers . . . at the same time. Do you understand just how big a lie this undersupply story is? The Government was so concern of a collapse in the housing market that they sacrificed first home buyers to bidding wars with cashed up foreign buyers. Does this really sound like there is an undersupply of housing? This is a tired argument that is rolled out to . . . can you guess what the motivation is of someone telling you that theere is an unending and increasing demand for something. 4) more migrants are coming over here something like 200,000 last year or so. So they will all need a place to stay So how many of those 200,000 are cashed up investors ready to buy a property when they land versus welfare immigrants? We have some of the most expensive real estate in the world and I would contend an immigrant's ability to buy a house is directly related to their access to credit. What will be the impact on housing purchases in a credit crisis? . . . "Houston, we may have a problem!" 5) currently only 2% of the chinese drive cars and is set to increase to 20% within the next 3-5 years This may be so, but it assumes that they can continue to afford to buy them. If China cannot maintain their mercantile economy they will have to transition to encouraging and servicing internal consumption. Which will be a very interesting transition for a system that is run by 7 to 12 men of the communist politburo? Are we really relying on the omnipotence of 12 communist Chinese politburo members to force feed cars to 650 million people? Or are they stepping aside? 6) so they are going to need to buy more of our resources which is where our biggest export is unless they don't and instead turn to cheaper producers because their own margins are strained and aggregate demand is down. A Carbon Tax and Rent Resource Tax anyone? 7) if the US goes down our prices on resources will go up unless we devalue our dollar so its cheap so the chinese will keep buying Who says that the currency of a Country of 23 million people will not devalue faster than the currency of a Country with 320 million people. It was only 2 years ago that the Australian dollar was trading at $0.68. We could well get back to that level if the global economy turns sour. We broke below $0.95 this week already. In fact, I think we are already much affected by the uncertainty on global markets, the off-shoring of manufacturing and the realised losses on share market volatility. BHP is cheaper today than it was in early 2008, Woodside has gone nowhere. We already have a patch-work economy, as Mr Swan calls it, where everything other than the resource sector is struggling and yet these stocks haven't gained in 3 years! If demand for resources is impacted and there are no more Chinese speculators bidding up property, where to then for Australia?
I reckon it is differrent in Oz but only for some people. If you're in the middle of nowhere, have a farm; so dont rely on Woolies for meat, eggs , water vegies except maybe things like salt or petrol. I think their life wont be affected much and they might even make some money if something does happen.
Well said Gino, I just wish that sort of thinking could actually get out to the masses instead of the brainwashed propaganda the same people that were hoodwinked into investing in property purely for capital gain are fed.
They would have to stop drinking flouride first (for clarity of mind) and then turn off their TV sets (to reduce the misinformation flow). Unfortunately, I can attest that people don't want to do that because they are befuddled and apathetic (due to the fluoride) and can not break out of the rut to claim responsibility for themselves.
Hmm interesting!!! Yeah now I have both sides of the story I can make a con and pro list for both sides!! Yeah see i figured if im gonna buy real estate during a shit market id probably want to know the buying process of real estate which is why i attended this seminar.
Most, but not all, of China's exports are almost equally divided between the USA and Europe. If one of these major export markets crashes, or reduces, it will affect China, and by extension Australia, big time. To put it into perspective, imagine if 50% of Australia's export markets dried up. There would be carnage in the markets.
