I am sitting in a small cafe watching an ancient, wizened former Anzac soldier placing a flower in remembrance of his fallen comrades at the cenotaph in Martin Place in central Sydney. The man must be 90 at least, but he is standing erect, two bright medals on his chest. Who is he remembering, or what horrors is he hiding?
The monument full of poppies marks the thousands of Anzac soldiers who died in the two world wars. The Australian casualties in the First World War are truly shocking. Some 38 per cent of all men between the ages of 18 and 44 enlisted. More than 400,000 left for war and 58,000 died. In a dreadful twist of fate, accounts from Turkish snipers in Gallipoli attest to the fact that the Anzacs made easier targets than the average British and Irish soldiers because the milk-fed, rural Anzac soldiers were physically much bigger than the much smaller, less well nourished British soldiers. Twenty-five years later, 39,000 Aussie soldiers died in the Second World War. This man was one of the survivors.
As he stands alone, hundreds of Sydney commuters rush by, consumed by their own cares, as he is by his. The ancient veteran then leans against the monument, lost in his own thoughts. The Australia he fought for was a very different country from today’s Australia. Back then, it was a largely British – and Irish – country. Today, Sydney is a city which hosts – according to its lord mayor, with whom I shared a panel last Tuesday – people who speak 200 different languages. It is clearly an immigrant melting pot, and the initial Italian, Croatian, Serbian and Greek immigrants of the 1950s have been superseded by huge Asian migration in the past 20 years, underscoring yet again that Australia is part of the Asian world now. Over the years, the Irish have kept coming too. Some years, it has been only a trickle, and other years, like now, it is a deluge.
This multicultural Australia is again home to thousands of young Irish people and, last Monday night at a packed convention centre, I spoke to 400 of them. The event was organised by an Irish business network - the Lansdowne Club – which has seen its membership swell in the past three or four years.
One of the most telling parts of the discussion was when the moderator asked how many in the room were paying off mortgages in Ireland. More than 100 hands went up. This is an extraordinary state of affairs. Here we have people who have travelled to the other end of the world to find work and are still lumbered with ridiculous mortgages that they are still servicing. It attests to the fact that the moral hazard argument regarding debt deals is pathetically weak, as this shows people who have already left the country and are still maintaining their payments. Some went so far as to say that they were in Australia in order to be able to meet their payments at home. If anything reveals the craziness of punishing people for making the mistake of succumbing to the incessant financial propaganda spewed out by the
banks from 2000 on, surely it is this.
The conversation moved on to the issue of Australian property. The Aussie property market has been defying gravity for years now. In fact, you could have come to Australia at any stage over the past five years and be reasonably confident that the market was madly overheated, set for a collapse – and yet it hasn’t done so. But every person I spoke to, particularly the Irish ones, seemed to think a monumental crash is only months away.
We know that a property boom is never caused by supply and demand. Property booms and property bubbles are always and everywhere caused by too much credit, and we all know that the ugly handmaiden of credit in good times is called debt in bad times. Credit sounds good, debt doesn’t – but they are one and the same thing and, when a market reverses, credit morphs into debt instantaneously.
So why has Australia avoided a bust so far, particularly when the Aussie banks are so exposed? If you doubt this, consider this fact: at today’s share prices, the Australian banking system is valued at more than the entire banking system of the eurozone. Australia has a population of 22 million, compared to the eurozone’s population of 317 million. You might say ‘go figure’, but the crash hasn’t happened. Why?
Maybe one of the reasons is that the Aussies have that rare luxury of being one of that relatively small number of benighted countries – we also could have been one – to which the financial markets are prepared to lend in its own currency, which is floating. This means that, if the country has a wobble, the exchange rate falls dramatically, which cushions the blow and allows the country to recover without an over-dramatic collapse in local asset prices.
But the mechanism whereby a country with its own exchange rate overheats is not too different from one which does not have its own exchange rate, like Ireland. In Australia, the boom causes the current account to plunge into deficit, because Australian banks are borrowing abroad to lend into the overheating local markets. The locals want Aussie dollars so that the banks have to convert their borrowed US dollars into Aussie dollars, because you can only buy Aussie property with Aussie dollars. This causes the Aussie dollar to rise dramatically against the US dollar – as has been the case in the past few years.
In order to cool down the economy, the central bank raises interest rates, but this just attracts more money in, as the spread between Australian interest rates and US rates widens and the currency appreciates more. Gradually as this goes on, exports become more difficult and imports become cheaper, driving the trade deficit upwards. Also, as happened in Ireland, all this effervescence in the local economy makes investing in the local economy much more attractive than the hassle of competing on the international market. As for productivity, it begins to fall, as more and more cash and immigrants are sucked into the country to be deployed in the booming local economy.
As prices go ever higher, certain investors begin to take profits - and then prices fall. Then leveraged investors, who got into the boom late, panic and try to sell, leading to a flood of properties. This in Australia will be coincident with the currency falling. The fall in the currency will offset some of the falls in property, but not all. This is what is on the cards for Australia. As to when exactly, it’s impossible to tell, but it will happen – for sure mate.
The old Anzac shuffled off after a while, locked into his own world. I turned to last Wednesday’s Sydney Morning Herald. The main paper was 20 pages long. The business and sport supplement was another 20 pages but – wait for it – the property supplement last Wednesday was a whopping 136 pages of wall-to-wall, unashamed, top-shelf, property
porn. Now where have we all seen that before, and what did it signal?
David McWilliams new book, The Good Room, is out now
There is another difference between Ireland & Australia. They are, in the words of my Aussie mates “World Champions at digging stuff out of the ground” – stuff that China has been buying for the past 15 years in vast quantities. It may look like an unsustainable economic model, especially as China wobbles, but it they are doing more than selling houses to each other and thinking that equates to wealth.
Sydney is always a bit of property market special case.. Geography-wise it is hemmed in by protected parklands all round over land and the sea to its east all new developments are v limited and good plots have subdivided to the east for years making a cap on supply.
Coupled with its diverse local economy leads to the property market being somewhat different than say Dublin or even London.
The degree to which the general economic factors and geography affect the Sydney property market and the degree to which it may be flying unsustainably on credit perhaps need further exploration.
Cycles of boom and bust define capitalism; Australia is a lead players in the game today, it would seem that some Irish have learned a painful lesson, while the lunacy of living and working there to pay mortgages back here is quite symbolic of the madness that so many seem cheerleaders for, where are those economists now who championed the whole thing? Where is the media that gave them the platform? Where is the political system that pushed the whole thing? Where are the banks who acted as the great enablers of insanity? Sadly for old veterans they joined up… Read more »
The balance sheets of ANZ, NAB and Westpac (the 3 main Australian banks) make for interesting reading: 1. The balance sheets of the 3 banks amount to over $1.6 trillion or nearly $80,000 per capita. 2. The market cap per employee of the banks is approx. $2 million. 3. Loan impairments are 0.2-0.25% versus averages in the rest of the world of 0.8-2%. 4. Profits per customer are $500-600 p.a. compared to international averages of $50-150. 5. Assets are funded (for Westpac and ANZ in particular) with a large portion (approx 33%) of non deposit based borrowing. 6. Market cap/book… Read more »
Irish people are paying their mortgages working in Australia; Lloyds [Royal Bank of Scotland] accepts 10c in the Euro on Irish proprty loan:
http://www.rte.ie/news/2012/1119/lloyds-takes-massive-loss-on-irish-property-loans-business.html
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Stupid is as stupid does,is Australia to big to fail,I hope that the bubble does not burst down under for the Irish who have gone to Australia for what ever reason. Australia has helped the Irish government hide the true dole figures and also put less of a burden on the social well fair system and at least the Irish away from home who are still paying the con job mortgages they took out in this banana republic. Where else would the real villains in the Ireland of backwardness and there list of wrong doing fed by greed and corruption… Read more »
Some graphs are in order, prepared by Australians who have thoroughly checked the banks : Australia’s Gross Foreign Debt to Sept. 2011 Derivatives versus Assets and Equity. Top four Australian Banks 2010-2011 Australian Banks’ Total Derivatives. Australia’s banks’ combined exposure to toxic derivatives obligations has climbed to $20 trillion. CBA Balance Sheet The collapse of the property bubble will force a sharply downward revaluation of CBA’s lending assets, of as much as $150 billion, or even more (dotted line). Take that away from its balance sheet, and it is bankrupt. Australian Banks Deposits v. Derivatives. top 4 (2009) Protect the… Read more »
Some graphs are in order, prepared by Australians who have thoroughly checked the banks :
Australia’s Gross Foreign Debt to Sept. 2011
Derivatives versus Assets and Equity. Top four Australian Banks 2010-2011
CBA Balance Sheet
The collapse of the property bubble will force a sharply downward revaluation of CBA’s lending assets, of as much as $150 billion, or even more (dotted line). Take that away from its balance sheet, and it is bankrupt.
Australian Banks Deposits v. Derivatives. top 4 (2009)
Protect the deposits from the derivatives: The trillions in derivatives puts bank deposits at risk, but without Glass-Steagall the government is forced to support both.
Australian Banks’ Total Derivatives. Jun 1989 – Jun 2012
Australia’s banks’ combined exposure to toxic derivatives obligations has climbed to $20 trillion.
This is very similar to the EU and US banking development.
136 pages of property porn, haha. Outrageous.
Really interested in this as I lived the oz dream and then came home, I am one of the lucky ones where my IT career is flying at the moment. But the negativity and weather does take a toll.
The questions I have is sure the property market in Oz is crazy, but the previous article say that all will be good in the lucky country as it is the food basket of Asia, so which is it then boom or bust or somewhere in-between?
The leader of the Labour Party’s wife is to be given a job Taylor made for her on a salary of €90000 per year the same shit different day ,is this what we voted for.
On the note about ´´great at digging stuff´´, I noted three or four months ago that aussie mineral quarries are having difficulty recently getting paid by the chinese for the materials they order. Another crack in the hull… When all our Irish paddies return once it goes belly up in Oz, the real depression will start here. I wonder what the value to the Irish economy of all these mortgage slaves sending mortgage payments back from Oz, USA, England and Canada is?
SHADOW BANKING: WHAT WALL STREET AND THE CITY ARE DOING WITH THE MONEY-PRINTING Nov. 19, 2012 (LPAC) — Financial press all reported today that the European Commission’s Financial Services Board has calculated the global “shadow banking sector” to have ballooned back up to $67 trillion in assets as of Dec. 31, 2011, a bigger speculative asset bubble than in mid-2007 just before the world financial blowout. The Nov. 18 report, while admittedly just an estimate of unregulated debt, gives an indication what the trans-Atlantic financial institutions have been doing with the tens of trillions in bailout money-printing by central banks… Read more »
Have the Aussie banks borrowed to the same extent as the Irish banks did? I doubt it. They have their own central bank don’t forget and can deal with disasters in a much more speedy and efficient manner than us Irish. They are not shackled to a union.
I am out on a limb here. But the primary reason Australia will not blow badly is because it has a strong innovation and tech base which is not overly reliant on writing software for games or media or banks. Australia’s inventiveness is not that well known because like all good tech, it is not attractive, hype oriented or that easy to explain. I’ll give one classic example – Biocycle Septic tank. That came direct from Australia and we have them here in Ireland for about 20 years. Now if the thing could only do the same with Irish banking… Read more »
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I have tried to post several times to no effect. Anyone else having a problem
http://www.youtube.com/watch?feature=player_embedded&v=gk600gFnlrk
@Tony, change your post – try not to repost the same thing over and over again. Could be a bug on the site.
I visited Australia 2 years ago, and I wasn’t overly impressed with it. Everything costs a lot of money, you can’t help feeling you are being ripped off. Her cities lack soul, her suburbs are sprawling and ugly and her countryside lacks variety. It feels cut off from the rest of the world, like it has been cast adrift. I was blessed I didn’t stay there working, for I personally greatly prefer London and Europe. I would go to the good old USA any day before Oz also. Canada wouldn’t fare so well either, apart from Tony Brogan’s neck of… Read more »
Here’s a curious one http://tinyurl.com/czan464
Video: ‘Speak English or die’ – Australian mob’s racist abuse of bus passenger caught on camera
http://www.independent.ie/world-news/asia-pacific/video-speak-english-or-die-australian-mobs-racist-abuse-of-bus-passenger-caught-on-camera-3301193.html
Everywhere is the same now Davido. Full of morons. Take off your shades and have a look at life. Aus?
You can keep it mate. G’day
It is good to see more Irish people coming to Australia whether as visitors or to stay. This commentary is like many first impressions. Yet Australia is a complex place and first impressions can be deceptive. You need time to understand the country in a more nuanced way. There are risks in the Australian property market, of course, but it is not comparable to Ireland. Metaphorically speaking, there is a significant difference between a bubble and a balloon. Inflated Australian property prices, which occur periodically, adjust more like a deflating balloon: can lead to difficulties but these have been manageable.… Read more »
Genuine help needed as I am confused.
I am saving to buy my first house in Australia (looking to buy early next year) and extremely confused.
There are a lot of similarities between here and pre-2008 Ireland. However there is great optimism in the country (which there was in Ireland also).
Are we being overly cautious due to what has happened us?
Should I hold onto my 100k (for my deposit – which could buy a town back home) and wait for the market to crash?
Please advise.
Meanwhile back at the Ranch of the Crooked Euro, some sane advice : Hans-Werner Sinn: ‘Temporary Eurozone Exit Would Stabilize Greece’ Nov. 20, 2012 (EIRNS)–In an interview with Germany’s {Der Spiegel}, Munich-based economist and critic of the Eurozone bailouts Hans-Werner Sinn said the following: “If Greece exited the monetary union, the Greeks would purchase their own goods again, and wealthy Greeks would return to invest. And if Portugal leaves, it will have similar positive experiences. The [Sinn’s] Ifo Institute has studied some 70 currency devaluations and found that recovery begins after one to two years. “We are, of course, also… Read more »
Suppose it is back to basics. Why are property prices so high. Demand created by the availability of loads of money at cheap rates. Why are people so optimistic. Human nature. All is up and up and up and it’s infectious. Will it crash? Yes. Because China as a main buyer is diminishing as is India and so on so on. Will the crash be as bad as what we have in Ireland / Spain…It depends. Depends on who is calling the shots. Will the market be allowed to work? Will media ever be allowed to give a true assessment… Read more »
A hilarious piece from the Irish Times ! Could rejoining the UK be any worse than this? “It’s not such a radical idea. A one-time columnist for The Irish Times (now pontificating in another place) used to regularly make the case for re-entering the Commonwealth. If that organisation is good enough for former colonies such as India, Australia and Papua New Guinea then it’s good enough for us. After all, the Australians can’t stand the English, but they stubbornly refuse to disengage from a coalition comprising the nation’s former slave states.” ….. “It’s all academic anyway. After the events of… Read more »
When I look at the government it’s like looking at the mafia without the bullets,but then the people at the top normally got there foot solders to do there dirty work.
You know it makes me stand back and realise how selfish these people are in some ways it’s almost like looking at spoiled children who have to get three own way.
Like a cesspool which cannot be contained indefinitely, FAZ leaks more of the truth to the misinformed German taxpayer. Game’s up:
21.11.2012 · Das Geld für Griechenland ist nur geliehen – so heißt es. Unsinn. Es ist Zeit, die Wahrheit zu sagen. Ein Kommentar.
Von Patrick Bernau
http://www.faz.net/aktuell/wirtschaft/europas-schuldenkrise/griechenland/kommentar-zur-griechenland-rettung-seid-endlich-ehrlich-das-geld-ist-weg-11967098.html
Bundesbank president Jens Weidmann said 19-Nov in Frankfurt that he did not believe that the proposed banking regulator for Europe’s 6,000 banks should be allowed to help banks which have already been bailed out by national governments. “The current problems in the banking system are above all a result of past mistakes on the national level,” Weidmann said. “Balance-sheet risks that occurred under national responsibility must also be overcome by the respective member state.” Mr Weidmann, who sits on the governing council of the ECB, echoed the views of Chancellor Angela Merkel and Finance Minister Wolfgang Schaueble who have also… Read more »
After and during the Housing mania came the Renewable Energy insanity. Imagine what this means for Merkel’s “nuclear exit!”! This is a sign to all, Australia included, that the green policy is from exactly the same source as the financial catastrophe. An ambitious plan to provide 15% of Europe’s power needs from solar plants in North Africa has run into trouble. The Desertec initiative hoped to deliver electricity from a network of renewable energy sources to Europe via cables under the sea. But in recent weeks, two big industrial backers have pulled out. And the Spanish government has baulked at… Read more »
I don’t understand this comment:
“We know that a property boom is never caused by supply and demand. Property booms and property bubbles are always and everywhere caused by too much credit…”
If supply was doubled overnight, 136 pages of property porn would not maintain prices.
Here comes the 100th comment & my min wage/alcohol availability ratio. The defining economic acid test! Was in Oz in 1999, my fond memory (apart from the reliable weather) was the standard of living and how much ‘bang’ you got from your buck. Back then min wage in Ireland floated around £5 (Ahhh the punt) and a pint of the plain cost around £3, so you were into your second hourly rate when navigating toward your second pint. Downunder I worked bars, sites and even mobile sales for a while (1 day) and min wage was $12-$14. A Schooner of… Read more »
David, that is a the war memorial in Martin Plaza (it hasn’t been ‘Place’ for 30years), not the Cenotaph(literally empty tomb)which is at the southern end of Hyde Park, about a kilometre away. You claim to cool down the economy, the central bank raises interest rates, – the Reserve Bank has lowered interest rates on all but one of the last 8 quarterly reviews (no change once, the review before last – currently at historic lows not seen since the early 1960s. The A$ has NOT risen because the local banks are borrowing foreign money but because the majority of… Read more »
having worked around the world in the oil & gas business for the last 20 years I moved to Perth in 2008 to work on some big gas projects. Perth is the centre of the current boom and only comparable to whats happening in Brazil just now. Anyone who thinks this is not rocky should take a look at BHP’s Olyympic Dam or Port Headland Inner harbour projects along with the coal seam gas projects in Queensland. These projects have been shelved almost overnight and are the tip of the iceberg. The economy in WA is supported by the crazy… Read more »
[…] As bad as things are, Ireland is still a great place to live, and things are now, finally beginning to improve. Meanwhile, there are some who say Austrailia’s boom is coming to an end. […]