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Do you realistically expect the US, Japan, or Korea to somehow fill the gap if China suddenly drops its demand for Australian commodities? India might pick up s

by jakarta 16y ago

Do you realistically expect the US, Japan, or Korea to somehow fill the gap if China suddenly drops its demand for Australian commodities? India might pick up some of the slack, but I would bet against it. Household debt / disposable income in Australia is 157% versus 133% for the US shortly before the financial crisis. That level of debt combined with ever increasing home prices should create a pretty volatile situation.

nl 16y ago
Do you realistically expect the US, Japan, or Korea to somehow fill the gap if China suddenly drops its demand for Australian commodities? Probably not, but it depends. If you think the "China bubble" is because of Chinese domestic demand (ie, construction in China) then it will be hard to replace. If you think it is because of Chinese exports then it's possible another country could substitute. Personally I reject the idea of a Chinese bubble altogether. Household debt / disposable income in Australia is 157% versus 133% for the US shortly before the financial crisis. It would be great if that was lower, but there are reasons for it. It's mainly because of high house prices. Unlike the US we don't have a housing bubble, because of our increasing population. Average household debt is around 20% of household assets (http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features60March%202009 http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Fe...). While the asset prices (ie houses) keep increasing that level of debt remains serviceable.
- wisty 16y ago
  Yeah, but if the average Australian owes 1.6 times their annual salary, and house prices are 6X income, and they also have 2 years income locked into superannuation for their retirement (go boomers!), then things could go bad. Ask an American, English, Irish, Greek, Icelandic, or Japanese poster.
  - nl 16y ago
    I don't understand what you are saying, but it seems to me you are confusing cause and effect. Yeah, but if the average Australian owes 1.6 times their annual salary, and house prices are 6X income, and they also have 2 years income locked into superannuation for their retirement (go boomers!), then things could go bad Yes, if you have a high level of debt and things go wrong then it's not a great place to be. But there needs to be something else to make things "go bad", and for it to be a significant problem it needs to happen quickly, before people can adjust their debt levels based on economic signals like an increasing unemployment rate. A very sudden collapse in commodity demand from China could cause a crisis like that, but a sudden drop like that seems unlikely to me. (If you disagree, explain what you think happens in China to cause such a rapid change) A more likely scenario seems to be a slow decrease in demand, occurring over many years. A slow slowdown in demand allows people to change their debt levels, and while individuals may have problems it is unlikely to cause a huge crisis beyond a higher unemployment rate. Given Australia got through the biggest financial crisis since the 1920's in pretty good shape I think automatic pessimism is unfounded.
    - barkingcat 16y ago
      The two things that could cause Chinese demand to collapse is war, or a people's revolution. Both will be very very bloody, and you would worry about other things than just property value or annual salaries. Be afraid for your life, no matter where on the globe you live. As a Taiwanese, I always feel that tension on the bead, that possibility that either World War 3 or the world's largest and bloodiest popular uprising would erupt before my eyes, perhaps on the back of some trivial issue, like denying China the ore that it wants.
      - nl 16y ago
        The two things that could cause Chinese demand to collapse is war, or a people's revolution. Both will be very very bloody, and you would worry about other things than just property value or annual salaries. Yes, that's my view too. I don't think it's possible to hedge against the collapse of China. The effects are just so unpredictable. For example, the traditional hedge in times of crisis is to move money into some kind of physical reserve, eg gold. Increasingly people try and hedge at a macro level by buying into gold producing companies instead of the physical object itself. Ironically, that would mean increased demand for Australia's Gold companies - so money might be reallocated from Australian iron ore companies like BHP Billion & Rio Tinto to Australian gold mining companies like umm..... BHP Billion & Rio Tinto. Now I'm not saying this would happen - just making the point that it's difficult to predict exactly what would occur.
- dejb 16y ago
  > While the asset prices (ie houses) keep increasing that level of debt remains serviceable. Isn't this just another way of saying that the bubble is fine until it bursts? You mentioned our increasing population but I thought both of our potential governments where now committed to a 'sustainable Australia' (A.K.A. reduced immigration).
- justsee 16y ago
  Unlike the US we don't have a housing bubble, because of our increasing population. "Debunking the Australian Housing Shortage" http://www.unconventionaleconomist.com/2010/05/debunking-australian-housing-shortage.html http://www.unconventionaleconomist.com/2010/05/debunking-aus... The claim Australia has a housing shortage is not backed up by any decent data (only by very weak / spurious data provided by the property industry itself), and represents a continuing effort by the property industry to explain away all the signs that clearly indicate Australia is in the midst of a massive asset bubble.
  - carlistixx 16y ago
    And a different view: http://www.rismark.com.au/pdf/Macsec_5.pdf http://www.rismark.com.au/pdf/Macsec_5.pdf
    - justsee 16y ago
      This is a presentation from Christopher Joye of Rismark, who has gained a lot of notoriety in Australia for being so bullish on Australian property. Rismark sells an innovative shared-equity mortgage product. Shared-equity products require a rising housing market (as consistently advocated by Robertson) to be able to sell what is essentially a wholesale investment in residential property to investors. So I wouldn't state he has a different view, rather his view is the view of the real estate industry, and as he has a vested interest in rationalizing away any bubble he wouldn't be the first analyst to turn to for unbiased, independent opinion. People bearish on property would call him one of the leading property 'spruikers'. That he is continuing to claim there is a housing shortage in a recent presentation really confirms this. Also, providing 'Source: Rismark' shouldn't really cut it for anyone wanting to get a clear picture of the Australian property bubble.
caf 16y ago
The debt ratios aren't directly comparable, because there are significant differences in the way housing finance is conducted in the two countries. Unlike the US, Australian house loans are never non-recourse. This means that borrowers tend to continue to pay them off even if the notional value of the asset drops below that of the outstanding debt - they can't just mail the keys back to the bank and get out of the loan. Most housing finance in Australia is provided through one of the "big 4" very large and heavily regulated banks - small regional banks are not a significant portion of the Australian market. Australian housing loans also tend to be variable-rate, as opposed to the fixed-rate that's the norm in the US.

by jakarta 16y ago

nl 16y ago

Do you realistically expect the US, Japan, or Korea to somehow fill the gap if China suddenly drops its demand for Australian commodities? Probably not, but it depends. If you think the "China bubble" is because of Chinese domestic demand (ie, construction in China) then it will be hard to replace. If you think it is because of Chinese exports then it's possible another country could substitute. Personally I reject the idea of a Chinese bubble altogether. Household debt / disposable income in Australia is 157% versus 133% for the US shortly before the financial crisis. It would be great if that was lower, but there are reasons for it. It's mainly because of high house prices. Unlike the US we don't have a housing bubble, because of our increasing population. Average household debt is around 20% of household assets (http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features60March%202009 http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Fe...). While the asset prices (ie houses) keep increasing that level of debt remains serviceable.

wisty 16y ago
Yeah, but if the average Australian owes 1.6 times their annual salary, and house prices are 6X income, and they also have 2 years income locked into superannuation for their retirement (go boomers!), then things could go bad. Ask an American, English, Irish, Greek, Icelandic, or Japanese poster.
- nl 16y ago
  I don't understand what you are saying, but it seems to me you are confusing cause and effect. Yeah, but if the average Australian owes 1.6 times their annual salary, and house prices are 6X income, and they also have 2 years income locked into superannuation for their retirement (go boomers!), then things could go bad Yes, if you have a high level of debt and things go wrong then it's not a great place to be. But there needs to be something else to make things "go bad", and for it to be a significant problem it needs to happen quickly, before people can adjust their debt levels based on economic signals like an increasing unemployment rate. A very sudden collapse in commodity demand from China could cause a crisis like that, but a sudden drop like that seems unlikely to me. (If you disagree, explain what you think happens in China to cause such a rapid change) A more likely scenario seems to be a slow decrease in demand, occurring over many years. A slow slowdown in demand allows people to change their debt levels, and while individuals may have problems it is unlikely to cause a huge crisis beyond a higher unemployment rate. Given Australia got through the biggest financial crisis since the 1920's in pretty good shape I think automatic pessimism is unfounded.
  - barkingcat 16y ago
    The two things that could cause Chinese demand to collapse is war, or a people's revolution. Both will be very very bloody, and you would worry about other things than just property value or annual salaries. Be afraid for your life, no matter where on the globe you live. As a Taiwanese, I always feel that tension on the bead, that possibility that either World War 3 or the world's largest and bloodiest popular uprising would erupt before my eyes, perhaps on the back of some trivial issue, like denying China the ore that it wants.
    - nl 16y ago
      The two things that could cause Chinese demand to collapse is war, or a people's revolution. Both will be very very bloody, and you would worry about other things than just property value or annual salaries. Yes, that's my view too. I don't think it's possible to hedge against the collapse of China. The effects are just so unpredictable. For example, the traditional hedge in times of crisis is to move money into some kind of physical reserve, eg gold. Increasingly people try and hedge at a macro level by buying into gold producing companies instead of the physical object itself. Ironically, that would mean increased demand for Australia's Gold companies - so money might be reallocated from Australian iron ore companies like BHP Billion & Rio Tinto to Australian gold mining companies like umm..... BHP Billion & Rio Tinto. Now I'm not saying this would happen - just making the point that it's difficult to predict exactly what would occur.
dejb 16y ago
> While the asset prices (ie houses) keep increasing that level of debt remains serviceable. Isn't this just another way of saying that the bubble is fine until it bursts? You mentioned our increasing population but I thought both of our potential governments where now committed to a 'sustainable Australia' (A.K.A. reduced immigration).
justsee 16y ago
Unlike the US we don't have a housing bubble, because of our increasing population. "Debunking the Australian Housing Shortage" http://www.unconventionaleconomist.com/2010/05/debunking-australian-housing-shortage.html http://www.unconventionaleconomist.com/2010/05/debunking-aus... The claim Australia has a housing shortage is not backed up by any decent data (only by very weak / spurious data provided by the property industry itself), and represents a continuing effort by the property industry to explain away all the signs that clearly indicate Australia is in the midst of a massive asset bubble.
- carlistixx 16y ago
  And a different view: http://www.rismark.com.au/pdf/Macsec_5.pdf http://www.rismark.com.au/pdf/Macsec_5.pdf
  - justsee 16y ago
    This is a presentation from Christopher Joye of Rismark, who has gained a lot of notoriety in Australia for being so bullish on Australian property. Rismark sells an innovative shared-equity mortgage product. Shared-equity products require a rising housing market (as consistently advocated by Robertson) to be able to sell what is essentially a wholesale investment in residential property to investors. So I wouldn't state he has a different view, rather his view is the view of the real estate industry, and as he has a vested interest in rationalizing away any bubble he wouldn't be the first analyst to turn to for unbiased, independent opinion. People bearish on property would call him one of the leading property 'spruikers'. That he is continuing to claim there is a housing shortage in a recent presentation really confirms this. Also, providing 'Source: Rismark' shouldn't really cut it for anyone wanting to get a clear picture of the Australian property bubble.

caf 16y ago

The debt ratios aren't directly comparable, because there are significant differences in the way housing finance is conducted in the two countries. Unlike the US, Australian house loans are never non-recourse. This means that borrowers tend to continue to pay them off even if the notional value of the asset drops below that of the outstanding debt - they can't just mail the keys back to the bank and get out of the loan. Most housing finance in Australia is provided through one of the "big 4" very large and heavily regulated banks - small regional banks are not a significant portion of the Australian market. Australian housing loans also tend to be variable-rate, as opposed to the fixed-rate that's the norm in the US.