A Meaningful Life

Who’s at fault in the financial crisis? I hate witch hunts, they always seem to burn the wrong person in the end. However I must say that I can’t disagree with restricting payouts to people leaving sinking ships.

One party who needs to be held more accountable are the Federal Reserves. For at least a decade Federal Reserves have been finessing a stable inflation rate while allowing asset prices (many are not captured in inflation numbers) to dramatically outstrip wages. This makes the average person poorer in an affordability sense and sends them of to the predatory lenders to get some money to buy what they want – stuff to make them happy.

They have also allowed cheap money to build up in the economy by keeping unrealistically low interest rates for very long periods of time. When what they should have been doing is managing interest rates on a more realistic inflation measure that included assets prices.

The result of consumer-itis (the disease of getting lots of stuff in the hope of getting happiness) coupled with the capacity to buy it (lots of cheap money) has resulted in heavily indebted families with crappy home ownership affordability.

Here’s the rough maths.

When you earn 50k. All your money will go on rent, food and service. Probably 100%. You will probably fund excess using debt.

When you earn 500k. You will struggle to spend what you earn and it will in all likelihood end up in assets. Those assets generally get geared because you are told that is tax effective and gears up those returns. Rising prices (higher percentage of equity you own in the assets) lets you go and get more debt to buy more assets. The whole thing just fuels itself and creates a liquidity bubble. In the end you make stacks of money and end up with a huge gap between the low and high socioeconomic classes.

This crisis unwinds this. The reverse happens, asset prices plummet as assets need to be sold to pay of debt. Unfortunately everyone is rushing for the door at once because someone shouted fire. Those same people arrived at the party gradually. This is why prices go crazy when you see many people unwinding their geared assets all at once.

Some of you are thinking this is about risky investments. Well yes you’re right except that they don’t get created without a market and there has been a strong market of wealthy buyers for many years. The people whinging about those risky investments are the same ones slapping high fives at dinner parties when their geared risky investments paid them nice 25% p.a. returns.

As I saw in a Ted talk recently. It’s a little like blaming America for the war in Iraq. I might think it’s a mistake them being there but common sense tells us that had there been no 9/11 there would have been no war. “No 9/11, No War”. So the witch hunt should turn on itself if it is to be fair. The government is just as much to blame as the bankers who are just as much to blame as the debt binging consumers and return hungry superannuation investors.

Everyone has a choice to put their dollars in nearly risk free government bonds or low risk bank deposits. I think if you were that risk adverse and you lost your money you are quite justified in complaining. Everyone else needs to take it on the chin.

The witch hunt never seems to get it right because there isn’t such a thing as a right choice in the blame game.

American tax payers are about to start bearing the burden of bad credit bets placed by big banks and insurance companies.

I have been more than amazed by the events in the US in recent weeks during the financial crisis. Creating a pseudo guarantee structure for big American companies like AIG is just pure protectionism. This is capitalism gone wrong and it feels like it is just the start of placing losing bets into the hands of taxpayers who never participated in the upside of those companies during the boom. What do you call that? What kind of social justice is that?

By doing this the US government is sending a signal to stock holders that their bets have an implied guarantee to some degree.  Last nights massive stock market rally was just that. It was the market starting to price in protectionism into US banking and insurance equity valuations. If you can buy into a big insurer like AIG and have some certainty that they might be bailed out then it’s a damn good bet.

America’s corporate obese won’t be helped by feeding them more liquidity biscuits.

At the moment the emu is exactly the write emblem for Australia, I just wish the kangaroo would kick it’s head out of the sand.

There wasn’t any substantial attention to tech in the 2020 summit from what I can tell/read (someone please give me hope for our country and tell me I’m wrong).

Australia’s economy is based on mining, farming, real estate and education. This list should include technology. Australia’s risk is that a multi-country global recession (or depression) could kill the mining sector for about 10 years. Another risk is that farming becomes less and less viable over time. The real estate sector is mostly about one Australian taking money from another so it’s not a great contributor in a real way. Yep foreign money comes in via this segment but it’s investor dollars. Migration property demand doesn’t count because we need to build infrastructure to cope with growth.

So we get a bunch of minority groups together (such as elite sports people) to help work out what our vision for the future is. Australia 2020 = Fail.

The time would have been much better spent visiting other countries and seeing what is working successfully overseas. A trip to a Korean ship yard or better still a Korean Telco exchange. I would have gone to China visited manufacturing plants and at least a couple of their universities. Then off to Japan to find out why technology and discipline can sustain an economy who has a near zero resource base. From this we might learn how to stop riding the sheep’s back and instead jump on the backbone of a fibre optic network.

Technology has to be a part of any modern economies vision. Only a fool thinks otherwise. Technology is dominating work and lifestyle more and more.

Stil sums it up well in this post and also Stephens Collins on this acidlabs.org post.

Not to let the Liberal opposition of the hook. The Rudd Labour government should have taken this 2020 opportunity to address the Liberal Government credit bubble. Rampant asset inflation caused by extremely low interest rates has lead to burgeoning household debt which is now a major social issue and RISK heading off the back of a 10 year global boom.

Mining and rural sectors won’t provide for the future. That’s short-term-ism. If Australia is riding the sheep’s back now we will be hanging onto it’s stump of a tail in the future. New Zealand knows this all to well. We’ve been lucky to have a nice mining kicker to help us ignore the issue.

Eventually the big global economies will have enough money to buy the businesses that supply the resources they need so be prepared (they already have big shareholdings in some). Who’s addressing what we need to reduce our risk exposure to this sector not growing forever? Not the 2020 summit, that’s for certain.