I have been spending some time recently going through the global debt position. Many countries around the world have been executing fiscal expansionary policies financed by debt to counter the GFC (and which has been justified on the basis that the Great Depression was caused by the attempts of governments to balance budgets in a period of declining revenue, ie the Great Depression would have only been a Great Recession, if governments had adopted a Keynsian economics approach).
The US & UK are both going to have phenomenal debt levels of near 90% of GDP. Now to put this into perspective, WWII cost the US 130% of GDP and the American Civil War 104%. And to put it into even more perspective, Operation Iraqi Freedom cost 2% of US GDP and the Vietnam War 12% of GDP.
Next year alone, the US federal deficit will go to US$1.5 trillion+ which is about US$20,000 for every family in the country (and this is only for ONE YEAR). Over the course of the slump, the total could run to US$100,000 per family.
Ok the above facts are nice 'academia' land statistics. But whats the relevance. WHO WILL PAY FOR THIS?????
After the US depression in the 1930's the US raised taxes on the top tax payers from 25% in 1931 to 63% in 1932 to 79% in 1936 and STAYED UP THERE FOR 40YEARS, until the 1970's, upon which it has consistantly reduced up to now (back down to less than 40%).
Obama said his will take action to cut taxes for 95% of Americans. This is all well and good, but the top 5% of income earners pay 60% of all US income tax, up from 36% in 1980.
Now whats the relevance of all this for a property site????
At the end of the day, the government has to pay for this debt. Either through debasing money (ie higher future inflation, coupled with depressed interest rates) or through taxes.
The 'average' person wont pay the taxes, as the average person doesnt earn enough to pay the taxes, so it will be levied against the 'wealthy' and the aspirational class.
Now most of the old timers on this forum will know i am no D&G'er, in fact, i use periods of market uncertainty and fear, to acquire assets at prices less than their long term intrinsic value.
However i think this issue of global debt has significant ramifications with regards to strategic asset allocation. In Australia the problem SHOULD be less than in the US and UK, but with Kevin Rudd handing out money like there is no tomorrow for short term gains, we could still find ourselves in a future flux (not to mention some of the dire states budgets like NSW).
I would welcome any intelligent comments with regards to this issue.
My first thought (and its only an initial impression at this stage) is i would be weary of more 'expensive' suburbs with regards to residential investing. Many of these suburbs have been supported by the aspirational class and the tax reductions accorded to this class over the last 15 years (the Howard Battlers).
The major problem i see is that debt issues are RARELY resolved quickly. Hence debt inspired recessions take much longer to recover.
The US & UK are both going to have phenomenal debt levels of near 90% of GDP. Now to put this into perspective, WWII cost the US 130% of GDP and the American Civil War 104%. And to put it into even more perspective, Operation Iraqi Freedom cost 2% of US GDP and the Vietnam War 12% of GDP.
Next year alone, the US federal deficit will go to US$1.5 trillion+ which is about US$20,000 for every family in the country (and this is only for ONE YEAR). Over the course of the slump, the total could run to US$100,000 per family.
Ok the above facts are nice 'academia' land statistics. But whats the relevance. WHO WILL PAY FOR THIS?????
After the US depression in the 1930's the US raised taxes on the top tax payers from 25% in 1931 to 63% in 1932 to 79% in 1936 and STAYED UP THERE FOR 40YEARS, until the 1970's, upon which it has consistantly reduced up to now (back down to less than 40%).
Obama said his will take action to cut taxes for 95% of Americans. This is all well and good, but the top 5% of income earners pay 60% of all US income tax, up from 36% in 1980.
Now whats the relevance of all this for a property site????
At the end of the day, the government has to pay for this debt. Either through debasing money (ie higher future inflation, coupled with depressed interest rates) or through taxes.
The 'average' person wont pay the taxes, as the average person doesnt earn enough to pay the taxes, so it will be levied against the 'wealthy' and the aspirational class.
Now most of the old timers on this forum will know i am no D&G'er, in fact, i use periods of market uncertainty and fear, to acquire assets at prices less than their long term intrinsic value.
However i think this issue of global debt has significant ramifications with regards to strategic asset allocation. In Australia the problem SHOULD be less than in the US and UK, but with Kevin Rudd handing out money like there is no tomorrow for short term gains, we could still find ourselves in a future flux (not to mention some of the dire states budgets like NSW).
I would welcome any intelligent comments with regards to this issue.
My first thought (and its only an initial impression at this stage) is i would be weary of more 'expensive' suburbs with regards to residential investing. Many of these suburbs have been supported by the aspirational class and the tax reductions accorded to this class over the last 15 years (the Howard Battlers).
The major problem i see is that debt issues are RARELY resolved quickly. Hence debt inspired recessions take much longer to recover.
