THE JOURNO

In the Herald Sun today Scott Pape stares down the heat from irate landlords.

Stick to your guns, Scott, because you’re right – and they’re self-interestedly wrong.

BTW, you’ve actually put your finger on the cause of world economies collapsing, Scott. It’s all happening because the tax regime perversely encourages the finance, insurance and real estate (FIRE) sector, which is meant to be the SERVICE sector of the economy, but slaughters the DOERS, to whom the service sector is meant to be providing services but is instead running amok. It’s incredible. 

Of course, the proper policy response would be to reverse the source of revenue, but don’t hold your breath on that one because politicians  are in bed with the plutocracy’s lobbyocracy, and many are extensive property owners, too. Remember head of Treasury Ken Henry’s proposed mining resource rental at 40% of net profits? Remember his recommendation for an all-in land tax so that other taxes can be abolished?  In the US Joseph Stiglitz and James K Galbraith have said the same action is required if the USA it to exit its economic morass.

Watch, however, as world economies do everything except what’s needed; watch as they do a Japan.

ROBERT MUGABE – A ‘DEATH BED’ CONVERSION?

Speaking of mineral resources, I heard on BBC radio last night that dictator Robert Mugabe wants Zimbabwean miners who’ve been ripping off the country for years to pay 51% of their profits by way of rent. When, as in Australia, his miners replied they’d simply walk away, he said “That’s OK, China’s got companies prepared to pay the rent.” [!]

There’s a deep irony in Mugabe’s position at this late stage of his life.

Thirty years ago Mugabe, an ardent Marxist, double-crossed his non-Marxist partner Joshua Nkomo. Nkomo had advocated the newly-freed nation fund itself from land and mineral rents.  But with the assistance of Britain’s Lord Carrington, Robert Mugabe won out, slaughtering 20,000 Nkomo supporters in Matabeleland in the process.

So, now that you’ve completely stuffed Zimbabwe, Robert, you’re about to adopt Joshua Nkomo’s ideas – 30 years too late – is that right?

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Meanwhile, dear reader, have you seen David Collyer’s call for a residential buyers’ strike, here?

LIKE BANK ECONOMISTS AND FINANCIAL ANALYSTS?

I, too, have experienced your feeling of frustration at the “There is no bubble” crowd, David McWilliams.

I note your bank economist opponent  in this 2003 debate cited low interest rates to help justify “This time it’s different in Ireland.”

Low interest rates were indeed the line fed to unsuspecting buyers to make their big mortgages appear to be more manageable here, too.

However, in the days when interest rates touched 20%, inflation was running at not much less. I invite bankers and others who used ‘low interest rates’ (sic) to sweeten impossible deals to provide their clients with real interest rate comparisons, that is, to adjust comparative interest rates for inflation if they wish to give the true situation. Then they’ll have to admit that in the low inflation environment of the last ten years or so, real interest rates have, in fact, been quite high.

Liars.

But when economists and analysts’ salaries depend on mouthing platitudes and spouting lies to earn their salaries, they’ll do just that.  They’ll continue to defend the indefensible.

Hullo, Chris Joye; hullo Rory Robinson.

MY FRIEND PATRICK KILLILEA IN THE US SENDS THE FOLLOWING – IT INCLUDES SEVERAL AUSTRALIAN ITEMS 

BTW, check out Patrick’s site patrick.net.  It inspired Australia’s own Dan Cox at Bubblepedia.

I’m a baby-boomer myself, but I reckon the planet’s going to make it through OK if Gen Y’s excellent response to the homebuyers’ strike is any indication.

Comments on “GetUp”‘s site, at Prosper Australia , and on Facebook shows Gen Y has the ability to navigate itself safely through all the hype, dross and lies fed to them about the residential property market by mainstream media.  Taking on incredibly excessive debt for 30 years doesn’t appeal to them.

In what way is it a real “market”, by the way?  Can the fruit and veggie market keep produce off the market until we are starving and have to pay blackmail prices?  No, the fruit and tomatoes would rot. Can manufacturers hold cars, computer equipment, etc., off the market? Wouldn’t they become obsolete and rust?

But what happens with real estate ……? Yes, that’s right!

Using the novel approach of researching those properties having no water usage, EarthSharing‘s Andrew Sadauskas found one in every 15 properties in his Melbourne study area were vacant, held off the market without a tenant, the owners apparently pinning their trust in making a capital gain rather than running the risk of a tenant damaging their properties (for a 3% return, or less).

Sadauskas’ 2009 report I Want to Live Here concludes “The most astounding results, however, came from the 11.05% vacancy rate in Carlton, the 16.56% Genuine Vacancy Rate in West Melbourne, and the 28.96% Genuine Vacancy Rate in Carlton South”.   [!]

As an article in The Herald Sun today continued to give all the wrong  reasons for “the supersonic property boom that has us reeling”, I just had to leave the following comment:-

Apparently Planning Minister Matthew Guy sees no connection between these fantasyland house prices and the winding back of rates and land taxes over the last 40 years, or the fact that the Income Tax Assessment Act slaughters salary earners and promotes property speculation with negative gearing? No, it’s just supply and demand. [Sigh!] They don’t improve, do they?

Keep on challenging all the real estate institutions’ crud, people! They’re not working for you!

I wouldn’t be at all surprised if GetUp’s spectacular new top-rated suggestion for a home buyers’ strike is not taken up by GetUp – because it carries deeper implications.

You see it works like this. The economy is a mystery to many people, apparently including our political leaders and the vast majority of economists who don’t understand the often destructive part real estate plays within economies.

And reform movements are currently more committed to remedying the secondary effects of failing economies, such as pollution, money and credit, any of which I can easily imagine GetUp supporting as a campaign.

It seems politics and causes must be about things other than why we reward real estate monopoly and speculation with negative gearing and 50% concessions on capital gains; about things other than why we fine workers and companies for daring to work and being productive; about things other than allowing the few really big rent-seekers to claw back every red cent, and then some, of what they’ve paid in taxes over the years via the uplift in the prices of the properties over which they hold claim.

We’ve managed to avoid tackling the fundamental stupidity of a rigged taxation regime for so long that it makes us feel silly, a little self-conscious, to address it now. Why have we accepted such an obviously corrupt revenue regime for so many years, yet want to say it’s wrong now?

So, it’s much more comfortable and much easier to campaign about other things.

So, let’s forget that the current tax system delivers billions of unearned dollars – owed equally to all Australians – into the hands of billionaires whilst the other ninety-nine per cent of us struggle to meet payments for food, clothing, health care, education and the mortgage and we sink deeper and deeper into debt.

Australia’s GDP should be $2 trillion, instead of $1 trillion, our land prices and debt levels should be far lower, and our wages and salaries much higher – without being at all inflationary. We should all be sharing in this wealth, but we’re wedded to a tax system designed by rentiers that consigns most Australians into debt – and many into penury.  

Ken Henry’s panel inquiring into Australia’s Future Tax System has recommended a federal land tax should be used to abolish the wretched array of state land taxes, payroll taxes and stamp duties, and also argued for a 40% resource rent on mining profits.

What an incredibly enlightened development!

But these recommendations have hit a political brick wall because they offend the rentier class. With a few notable exceptions, Australian politicians are unduly in the thrall of these kleptocrats, simply because of their money and their corrupting influence. Unfortunately, at this point in Australia’s history, the question might fairly be asked, just who are our politicians really representing?

I suggest the Prosper Australia campaign may likewise hit a brick wall at GetUp, not because GetUp represent rentiers, of course, but because the campaign would get right to the heart of our systemic economic flaw.  Coming to that understanding can almost become too much for some people – it’s so stunningly mind-blowing – and can leave them like stunned mullets. And you don’t get too much action from a stunned mullet!

As a comment on the penultimate post, AusHousingCrash recommended I update my chart of Australia’s total land prices to GDP going back to 1911.

Here ’tis.

Don’t be misled by the 2007 on the X axis, that was the peak. The last year of the graph is actually 2010.

NOTE: Over the years the average land values relationship to GDP has been about 1:1, so might I suggest 2.86 is looking a bit ‘toppy’?

KEEP UP THE GOOD WORK, GUYS!

In yesterday’s blog I understated the number of people providing leadership in educating people to the Ponzi scheme residential property ownership now represents for new home buyers.

Dan Cox’s Bubblepedia website today lists a number of websites blowing the whistle on a complicit mainstream media. 

Congratulations, folks! I know it’s a tough often unrewarding job breaking through the sort of media hype that results in people at auctions actually applauding a young couple who’ve just paid a record price for their first home.  Applauding?  [Sigh!] 

We’ll crash through this crazy ‘homeownership at any cost’ mindset yet.

The only doubt that Australian real estate prices are in a bubble of gargantuan proportions resides in the minds of analysts such as former Treasury employees Paul Bloxham, Christopher Joye and their wishful adherents.

By publishing their highly contrived bubble denials, newspapers ingratiate themselves with their real estate advertisers and spruikers for the industry, thereby obscuring the overwhelming truth about the real estate bubble. It is relegated to the occasional article by Steve Keen, Gerard Minack, Gavin Putland or myself, or a rare IMF release.

The latter, though, are usually accompanied by a put-down from a disciple of the Bloxham-Joye school not noted for having found anything wrong with skyrocketing land prices other than an imaginary “shortage of supply”.

No guys: shortage of supply doesn’t cut it. Nor did it cut it in California.  Er, how about an errant tax system that gives all the wrong signals ….?

It’s most heartening therefore to see the great number of thoughtful people not sold on the “all’s well” line the media has constructed for them now having their own say in Prosper Australia’s call for a residential buyers’ strike as taken up by the social reform group GetUp.

It might assist discussion for me to provide an interim update of the Kavanagh-Putland Index. This is in two parts, showing 1) total real estate sale prices for Australia divided by GDP, and 2) real estate volatility as a driver of the economy’s direction.

I should emphasise that the broken lines for the current year represent incomplete figures. Although they are extrapolations based upon 2011 real estate sales data from South Australian and Western Australian government departments, I consider figures to come from the other states and territories will eventually confirm these dotted lines.

NOTES:

(A)        The 18 per cent bubble line is simply empirical.  (With the exception of the last of the banks’ 1994 distressed sales sell-off in other states, and the contemporaneous boom in Queensland, any time the ratio has surpassed 18 per cent Australia has experienced a recession. The better guide, though, is the ‘volatility’ chart.)

(B)        During the period of the current bubble, from 1999 until 2011, we’ve expended some $2.8 trillion on real estate, $805 billion of which appears to be within bubble territory.

(C)        A significant economic recession has been indicated when aggregate sales prices decline by 20%.