Martin North – Page 52 – Digital Finance Analytics (DFA) Blog

The Bear In The China Shop: With Tarric Brooker

Another Friday chat with journalist Tarric Brooker, and slides as we look at China and the impact on the Australian economy.

Slides are available here: https://avidcom.substack.com/p/dfa-chart-pack-your-australia-and

Send us your questions for future shows!

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Is The Bank Of England Broke – And Does It Matter?

The Bank of England, like other Central Banks, is a weird entity, in that it can, if it wants create money. We saw that through the QE programmes, through which it acquired large portfolios of Government Bonds – known as guilts.

The program ran from 2009 to 2022 and was designed to improve financing conditions for companies hit by the 2008 financial crisis. It saw the BOE accrue £895 billion worth of bond holdings while interest rates were historically low.

However, the pace at which the central bank has had to tighten monetary policy in a bid to tame inflation means the costs have risen more sharply than anticipated. Higher rates have driven down the value of the purchased government bonds — known as gilts — just as the BOE began selling them at a loss because bond yields have changed significantly, rising fast as prices fall (as yields and prices work in opposite directions).

The central bank began unwinding that position late last year, initially through halting reinvestments of maturing assets and then by actively selling the bonds at a projected pace of £80 billion per year from October 2022.
Both the Treasury and the BOE knew when the APF was implemented that its early profits (£123.8 billion as of September last year) would become losses as interest rates rose.

Now according to Deutsche Bank, the Bank of England’s losses on bonds bought to shore up the U.K. economy after the financial crisis will be “materially higher than projected until the middle of the decade,”

So should we worry? Well, the Bank of England has a pretty special arrangement with the UK government. Since 2009 it has promised the central bank that it would make good any losses it might suffer from QE, especially after it started sweeping any QE profits back to the Treasury in 2012.

More Households Buckle Under The Strain…

Almost one in three Australians are struggling to make ends meet, as cost-of-living pressures push more people to renegotiate bills, cut back on groceries and access their superannuation early. And one in five hit up friends or family as times tighten.

About 30 per cent of Australian adults find it difficult or very difficult to get by on their current income, according to a quarterly poll by the Australian National University.

Borrowers have been hit with 12 interest rate rises since May 2022 as the RBA tries to get on top of the most acute inflation outbreak in decades.

Financial stress is on the rise, with two-fifths of renters finding it difficult or very difficult to get by on present income amid a nationwide surge in rents.

But the biggest increase in stress over the past year was among people with a mortgage, who have borne the brunt of the fastest interest rate tightening cycle in a generation. About three in 10 borrowers are finding it tough.

None of this should be a surprise to followers of this channel, as I have been reporting the steady rise in cash flow stress in recent times, to new highs. My latest data to end August will be out in the next few days, and the trends continue to deteriorate.

Go to the Walk The World Universe at https://walktheworld.com.au/

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Australia’s Crazy Mixed-Up Future Means Less Home Ownership And Higher Taxes

The Australian government this week released the latest iteration of its Intergenerational Report, the sixth since the first was published in 2002. It is an intensely political document of nearly 300 pages.

Powerful forces will continue to shape Australia’s economy over the coming decades including population ageing, expanded use of digital and data technology, climate change and the net zero transformation, rising demand for care and support services, and increased geopolitical risk and fragmentation. These forces will influence the future path and structure of our economy and change how Australians live, work, and engage with the world.

The Australia of the 2060s will be very different from the one we know today. It will be older, with slower economic growth, a big “care” economy, and an export sector that is radically transformed due to the imperatives of climate change. But the finances will be under pressure, and migration will still be a critical element. Housing will continue to be a disaster.

Slower economic growth will place pressure on the tax base at a time of rising costs, creating a long-term fiscal challenge. Despite recent improvements in Australia’s fiscal position, debt-to-GDP remains high by historical standards. Long-term spending pressures are also rising across health, aged care, the National Disability Insurance Scheme (NDIS), defence and interest on government debt.

The economy will be about two and a half times as big, and real incomes are expected to be 50% higher by 2062-63. On the downside, economic growth will be slow – growing at an average pace of 2.2% over the coming four decades, from an average of 3.1% over the previous four decades.

Population will also increase more slowly than previously – by an average of just 1.1% annually. The report projects 40.5 million people in the early 2060s.

Migration is projected to fall as a share of the population. While the number of people 65 and over will double, Australia is still expected to have a younger population than most advanced countries.

Better policy decisions can still reshape the future, but the current mob are on the same ol same ol track, to the benefit of corporations and the well off but not for ordinary Australians who are trapped in this crazy policy vacuum.

Go to the Walk The World Universe at https://walktheworld.com.au/

Today’s post is brought to you by Ribbon Property Consultants.

If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.

Buying property, is both challenging and adversarial. The vendor has a professional on their side.

Emotions run high – price discovery and price transparency are hard to find – then there is the wasted time and financial investment you make.

Shoot Ribbon an email on info@ribbonproperty.com.au & use promo code: DFA-WTW/MARTIN to receive your 10% DISCOUNT OFFER.