RBA chief fears the economy's time is up

'What's going wrong with Australia?': RBA chief fears the economy's time is up

RBA Governor suggests Australia's time is up. 28 years of continuous economic growth could be coming to the end as wage growth falls and household debt remains elevated.

What do you think? How will the recession effect property? How are you positioning your portfolio?

 

cash flow is king. pay down debt . There's no reason to stop aspiring to a large resi portfolio.. and it has nothing to do with a recession. Who says we are headed for recession? WE may be. We may not be. Just keep soldiering on.... Whatever you buy, the only really important thing is to make sure it can pay its own way under P&I because that's going to be required one day ... Really wealthy people with mature portfolios or large surpluses can ignore that advice but mere mortals with vanilla yielding properties really shouldnt ..... We have historically low rates...take advantage of them to pay down as much non income producing, non deductible debt as possible. And if wage growth isnt there for you to make accelerated repayments,...manufacture or purchase extra income.

Take for example, the dual occ's Im doing in Goulburn with NRAS. The NRAS expires in June 2026 so for the first 6.5 - 7 years you'll get @18-20K after tax.... then when the NRAS runs out you'll revert to a miserly 8-10K CF+ after tax... This is income you are purchasing. Imagine how much debt you can pay off over the next 6,7,8 years with that sort of extra tax free income... It's an amazing amount of extra income that you can put to work. And if you dont have any PPOR debt , imagine how that sort of extra income might help pay for the P&I holding costs on other investment properties you might be carrying .... or imagine how it might allow for extra contributions into super .....

Or alternatively, look at adding something commercial if you have the available borrowing capacity and the appetite... thats another way to purchase income.

Or you could consider manufacturing income..... if you already own a property that you can add a granny flat to, look into that.

whatever you do... try and get a cash cow or two into the mix for extra income, and use the opportunity to pay down debt .... you wont ever go broke when more money is coming in than going out .

 

I am not a big fan of RBA chief - he only likes to see things in retrospect, and that’s really good for his role which is steering the overall economy.

 

What rubbish spin (on an otherwise cool article, thanks for sharing!).

The last person who’d say ‘the economy’s time is up’ is the RBA governor. He didn’t even suggest anything of the sort in any comments in the article either.

 

I'm sure there is a salesman thread somewhere

 

With RBA rates down to 1% he is smart enough to know that we are very quickly running out of options to stimulate the economy in the future.
Since 2012 IR rates have dropped by about 400 pts +++ and we srill cant stimulate the economy or push up wage growth..
Something is broken.

 

Importing demand for the housing industry whilst not expanding infrastructure is my guess.

 

Quote..
He worries about the scope of opportunity for the young today. One fashionable fear he rejects, however, is the claim that artificial intelligence and robots represent “the death of work” for the next generation as machines displace humans. “One hundred per cent wrong,” says Lowe..

Thanks for the link,and as this gentleman is on a million a year ,and if someone puts nostalgia ahead of a good business sense then Australia may have a problem..

From what i see,as these days most people just have their heads buried in the face of their mobile phone ,and i would say from the amount of small businesses and for lease signs in small shopping areas on the south-side of inner Brisbane then we may have been in recession for a few years,but just think if Shorten would be in power as their style was to pit people against each other..

One could always look at it different as i do the global share--markets--for the past 5 years have been a up-down-in-between and some i talked too outside this site think the Dow-Jones-index is going into the 4th longest bull run in seventy five years of history..imho.

New WA mining boom centres on robots, and not everyone's happy

 

Redom

When I first saw your reply , I was wondering whether you were referring to the OP , or someone using any article as an excuse to promote their system ....

Cliff

 

We need a recession if that's gonna help shake up the government into action.

And hopefully more tax cuts and handouts like what we got from Uncle Kevin!

 

l dunno but the RBA sure don't seem too confident and add into it economists all talking and warning recession too, they usually get it wrong don't they but with them all agreeing this time for once, bit of a worry.
Any thoughts ?

 

A lot of it is to do with the lack of government support this time around, compared to 2008.
Josh Frydenberg has said publically that it is budget surplus over stimulus. They want a surplus and they will do anything to get it, which means no stimulus this time round (and hence an almost inevitable recession).

To make maters worse, households are now building buffers for the recession, which means reduced spending.

 

Peter2013 if this is a fall/crash like 2008 what is the cause? 2008 was the subprime crisis, has anyone worked out what is actually causing the current decline?

I'm not a finance guy, but from what I can see lowering interest rates has minimal effect. When they are lowered home loan repayments don't reduce, only the interest component does. So there is no more money in the pocket to spend. Add that to all the failed investment schemes and advice ruining peoples lives, but tax advantages with super, people in my work area just add more money to super (older conservative work place). Are high house prices with equally high repayments and super bonuses amplifying the situation?

 

My understanding the current decline is being caused by high debt levels and compounded by low wage growth, i.e. the ability to repay and service that debt.

What happens when you borrow money? You bring forward demand. You spend the money today, when otherwise you would have spent this money in the future. But you have to pay it back, so you reduce demand in the future.

Australia now has the 2nd highest level of household debt in the world, so we have brought a lot of spending forward!

But it is like a heroin addict. Heroin (debt) will bring short term benefits such as increased spending (from borrowed money, construction of apartments), but at the expense of a slowdown in the future (withdrawal symptoms).

Philip Lowe said "A related argument is that the very low interest rates that have accompanied the pursuit of inflation targets are pushing up asset prices in an unsustainable way and sowing the seeds for damaging problems in the future."

The damaging problems in the future is the debt overhang when we have to stop spending and pay it all back.

Economists have a threshold of household debt levels where once you exceed it, it becomes a drag on the economy. Australia has well and truly exceeded this threshold.

 

Sorry what current decline? I wouldn't say this is anything like 08, we have had much tighter lending practice.

When rates drop, your payments do reduce. Mine have decreased by $400 a month keeping the remaining loan term. Are you talking about being fixed?