And the bubble continues to inflate…
The government, RBA and APRA are all sitting twiddling their thumbs as we head into madness.
The bigger the party, the bigger the hangover. Australia has crossed the threshold where we are just going to have a dusty head the next day. We are approaching the point where we will need to go to hospital and have our stomach pumped!
Could someone in a position of power please stand up and at least acknowledge that where we are now and where we are heading is very dangerous. David Murray has started the debate. Glenn Stevens is warning people, but yet throwing gasoline on the fire with low interest rates. Joe Hockey is proposing allowing superannuation to make the bubble bigger??!! Tony Abbott is completely ineffective and is just worried about keeping his job. Malcolm Turnbull is probably one of the few to understand the system, but is a politician without party backing. APRA are warning of maybe doing something if they feel that it ever got bad enough??!! (With the biggest mortgage debt in the entire world, I don’t quite understand what they are waiting for? Maybe at least twice the mortgage debt of any other nation?). The banks currently regulating themselves is like leaving your dog in a butchers store, walking out and saying “sit boy, stay, good dog”. The outcome will not be a good one.
I fear that nothing will be done and the external shock that will inevitably come, will destroy so many families and so much wealth that it will take decades to recover. This didn’t have to happen.
The pain that comes will be blamed on the inaction and terrible incentives stoked by the current administrations.
The market is the market. It will always be over confident or under confident. It is the job of the government and regulating agencies to avoid debt bubbles that fuel the irrational market and create the systemic risks. With the worlds worst housing debt metrics, the administrators have failed their people.
It is not a question of whether we have a correction or when. At these levels, a sizeable correction is baked in. The only question now is what can we do to mininise the pain for the average person. Will the current government steal cash from the people like they did in Cyprus? Will they bail out the banks UK style (nationalisation) or US style (forced capital and equity replenishment)? Do we have the right people in power to make these very difficult decisions? Do we really want Clive Palmer holding the nation to ransom with the balance of power in the senate? Will the government start a Freddy or Fannie Mae to keep the mortgage market alive? Will the government pay out the lenders mortgage insurance that the LMI companies cannot possibly do with only $3 Billion of capital for the $1.9 trillion mortgage market (obviously not every mortgage has LMI, but enough to make $3 billion a drop in the ocean). Where will future capital come from if overseas money which currently finances 45% of all debt dries up? What happens when the government loses its AAA rating which the banks rely on?
At Valor, we discuss these issues daily. We find it perverse that there are so few people in Australia worried about the trajectory of our nation. We do not have a crystal ball on what will transpire, however the more this bubble inflates, the greater the pain that will eventuate. Wiping away potentially decades of Australia’s prosperity because of inaction is inexcusable.