Booms, busts, cycles and risk appetite: RBA's Luci Ellis

Probably the most worthwhile article I've seen at the property observer web site .

Well worth a read for anyone interested in macroeconomic and property investing .

Cliff

 

Thanks for sharing, article is doing my head in.

A lot about a lot but really the nut and bolts of it comes down to supply vs demand.

Australia safer or less risk .......than other countries perhaps??? I am sure plenty of those who purchased in mining towns with 45%+ drop in values and rents wont feel the same way at the moment.

 

Very small ( but highly visible ) segment of the market , highly speculative purely driven by greed , equivalent to buying penny dreadful shares . Absolutely in no way indicative to the Australian financial system or typical of property investing .

Cliff

 

nuts and bolts of the article is a lot deeper than just supply and demand imo.

I've only skim read it so far and will go through inn detail later but some of his points about the conservative nature of this country (always taking the safer route etc) and whether minimising the downsides can also lead to a lack of innovation and minimising the upsides are points well worth exploring.

we do tend to be very risk averse in australia and that's from a personal, govt (local, state and fed), banking etc basis and that's often a hindrance to growth in all areas, be it personal or financial or whatever.

there are benefits to having such a safety first approach but also some downsides, having that discussion is a good thing.

maybe things should stay as they are, maybe we get it largely right but could be tweaked a bit, maybe big changes are worth considering. I don't know what the right answer is but I do know that if we don't at least ask the question we'll never know.

Australians have long taken the safe route, think of how many people you've heard scared to take the plunge to invest in something, start a business, take a big change in career direction, move countries whatever. this is despite the fact that realistically with the high wages we have across many different professions and skillsets, the strong safety nets, secure and regulated baking system and the relative ease for many aussies to get decent paying jobs in recent times we are well placed to take such risks and somewhat protected on the downsides.

people often wonder how the Vietnamese family down the road who moved here 20 years ago with nothing owns is now so wealthy or the old Italian couple who came here with nothing now so much property despite working menial jobs, a lot of it comes down to being willing to take risks imo.

things are changing quite rapidly atm, with some of the work I do I'm directly exposed to a lot of small businesses and start ups and there is a growing swell of really exciting and innovative entrepreneurs in this country atm across many different ages, fields and personal backgrounds.

it's a lot bigger than property or just basic supply and demand type analysis but that's just imo, im sure some will disagree.

 

apologies for the long post.

tl;dr - the article brings up some good points about the safety first approach we usually take in this country and whether it's sometimes counter productive. it's a much bigger and more important discussion than just whats gonna happen with property prices.

final paragraph is great-

"I hope I've provided some food for thought today. I do think it's fair to say that Australia chooses more financial safety than some other countries, and I think that has implications not only for how policy should be designed and conducted, but for how we conduct ourselves. We will never eliminate risk, nor would we want to. But by making the right choices on a range of fronts and at different levels, from individual to national, we can get the balance between risk and safety that we truly want."

 

true

 

I think sanj hit a very important point about investing... willingness to take risks to achieve success.

 

Very good reading

 

Thanks. by extension, imo, basic property investing is possibly the least risky investment and therefore often not all that lucrative.

we have a nation where a lot of people invest in property but over 90% retire still needing govt assistance. clearly it doesn't work all that well for the majority although obviously it can and does work really well for some

 

You have to take these publications with a grain of salt.

For most of the 2000's, the US Federal Reserve (including Alan Greenspan), who set the monetary policy, kept reiterating that the US banks and financial sector were in very good shape; and derivatives help de-risk the overall market. We all know how that turned out with the GFC.

 

I dont see what Alan greens pan or the GFC has to do with the appropriateness of her comments, she appears to be more tryimg to facilitate discussion than to be making any predictions or straight up financial analysis of the economy in this talk.

 

An article about the stability of Australian financial health, written by a RBA employee... whose organisation is directly responsible for setting the monetary policy of the country.

 

Why not read the content instead of judging the author or author's employer?

I think there were some excellent points in there and I genuinely do not see how Alan Greenspan is in any way relevant to the points raised in the article

 

"It is also reasonable to wonder if a society that chooses more safety can actually achieve it. And that depends on the dynamics of booms and busts. It is these dynamics that are the main topic of my talk today. To achieve greater stability, we need to know if bust inevitably follows boom, and if so, on what timescale. We also need to know if the severity and timing of a bust are things that policy can affect."

she appears to be talking more broadly about what policy can and cannot affect and the effect an overall safety first approach has on the economy and country as a whole.

it isnt an article on the specific financial health of the country but rather what does and doesn't affect it and what the rba can and can't influence effectively.

that's entirely different to Alan Greenspan specifically discussing the health of the American economy imo.

if you look her name up she has written some interesting stuff in the past so I think there's value in considering her words,even if you end up disagreeing entirely

 

I didn't say I disagreed with her. I think it is a very well written article and provides good thought stimulation.

My comment was - take it with a grain of salt. The author is "head of Financial Stability Department, Reserve Bank of Australia"... talking about the financial stability and financial safety of Australia...

"I do think it's fair to say that Australia chooses more financial safety than some other countries, and I think that has implications not only for how policy should be designed and conducted, but for how we conduct ourselves."