Is a recession looming?

[pricey]

Last night on the Age website there was an article regarding the possibility of another recession and that our interest rates now adjusted to the current eviroment are the equivalent of 17.5% in 1990.

http://www.theage.com.au/news/business/rates-go-up-recession-looms-and-forget-tax-cuts/2006/07/29/1153816422426.html

What are your opinions on this, and if we do have a recession, how long do you think it will last, and what will happen ie rates etc during this time.

Regards,

Pricey

 

[House_Keeper]

Far too early to talk of a recession. The economy is still healthy. As long as the commodity boom continues, the economy is likely to keep doing well.

I think it is a bit of an exageration to compare today's rate of 6% to 17.5% in 1990.

Journalist would make up anything to come up with a catchy title.

Cheers,

 

[myla]

hello,

the thing is core inflation, not just petrol, but healthcare, trades & services, building etc is all increasing

but different time because economy is supposedly still sound

who knows what will happen

thankyou
myla

 

[rambada]

Crystal ball is hazy but.....
- Some super annuation funds collapsed in USA
- ASX & Property twitchy
- Political insecurity world wide and domestically
- Discussion forums every where like cats on a hot tin roof
- Consumer sentiment very depressed
- Cranes in the sky line but reported oversupply and decreased demand
........ and finally - significant discounting by Harvey Norman.

Its happening as we speak, will be short (I'm an optimist), will recover briefly before significant huge geopolitical and financial shake up. A fantastic opportunity!

 

[RichardC]

Journalist would make up anything to come up with a catchy title.

Journalists, as a group, would be similar to any other group. Good, bad and ugly, some prone to sensationalism, others not.

Don't fall into the trap of being a rusted on property investor who dismisses everything you read which doesn't fit your world view as being unworthy.

I am absolutely convinced that the world order will change in ways very few could imagine. Being an old phart I am hoping things will hold together until after I have shuffled off this mortal coil, but I'm not confident.

Youngsters should be reading widely and refraining from taking long term positions because it will happen on their watch and possibly quite suddenly. You owe it to yourself and your family to cover your asses.

But don't ask me: I know nothing!

 

[plumtree]

You make a very good point and from one old phart to another I have the same outlook! It would be wise for long term investors to look beyond the standard wisdom as dished out in the 'How To' manuals. There may be things happening in the world economy that could change many of the things we think of as normal. The primary unit that serves as the basis for all other world economies, the US dollar, appears to be in a position that questions its right to be so important. The point to consider is that some of those rules that were always considered as absolute are not so perfect. Property values do not have to climb indefinitly!

 

[kero]

maybe each one of us can start to plant a banana tree to cope with this 4% inflation rate. Can anyone enlighten me how did the last recession happened? I mean, before it happened, were there signs?

 

[GIDDO]

Something to do with a banana republic I think

Uh Oh...

 

[rambada]

I work in an environment where there are some organisations that work to strict protocols and others to guidelines. By far the fluid guide line structure has the best outcomes - but not without hickups. There is no strict rule that will guarentee success. And in the evolving environment, recession or not, depression or not, and in the expanding world of information technology - the fluid structure will triumph.
Interest rates have an effect on the population relative to the level of debt. With the large level of debt, any % rate rise has a larger effect on the population - hence the 'equivalent' historical 17.5%. And as I heard once - Government sets policy to manipulate population.

However I do find that with all the study I do, with the experience I have - any market comes back to supply and demand - irrespective of economic climate (scarcity/demand dictates economic climate). So the more comlicated things become, the more I refer back to the basics, and form a fluid approach to it.

By the way, love the signature!
"Individuals don't act statistically, they act uniquely."
Ian Gawler, cancer Survivor.

 

[Rodney]

I run a business in the inner eastern suburbs of melbourne and i can tell you that people are starting to hurt.


Alot of people are putting kids out of private schools and after school activities.

 

[lizzie]

interesting article in the paper on the weekend about the potential interest rate hike - comparing nsw as the slow lane compared to the rest of the economy in the fast lane. an interest rate hike, intended to slow down the rest of the economy, will basically throw (in the opinion of the nsw business council spokesperson) spikes into the slow lane and blast nsw off the road altogether.

i don't envy the rba having to make a decision at all. nsw and vic are struggling with interest rate hikes whilst wa and nt shrug them off with their booming economy - there are around 3-4 different economies in australia so an increase in an attempt to slow one section down, decimates another - but if they don't increase then the fast lane drives up inflation.

there is also a large propotion of the population that don't own property - and this percentage is growing - so they really aren't immediately affected by interest rate increase, and will continue on their merry way buying junk and spending everything. until rents go up 6 months later ...

catch 22.

 

[Dis]

I run a business in the inner eastern suburbs of melbourne and i can tell you that people are starting to hurt.

Do you mean that you (and people in your situation) are hurting as a business owner because people are being more tight fisted? I would assume that a business reliant on discretionary spending would be disproportionately affected in down times, so things may be very bad for you if thats the case.

But for the average (employed) person ......... are they really "hurting"? Or are they just deciding that they dont need to eat out / buy doodads as much? I meet alot of people who claim they dont have money to pay bills but do have money to drink, smoke, and chat on their mobiles while they eat out waiting for their $100/mo hair cut.

(tongue in cheek example but you see my point).

 

[Bargain Hunter]

maybe each one of us can start to plant a banana tree to cope with this 4% inflation rate. Can anyone enlighten me how did the last recession happened? I mean, before it happened, were there signs?

According to the treasurer at the time Mr Paul Keating it was, " the recession we had to have". Mind you good old Paul told us this after the event, if only he had let on when he was planning it...

Although there are many factors no-one really seems to know exactly what economic planets need to align to give a recession. Thinking logically strong growth must eventually come to an end, however the application of outside measures such as the increase of interest rates brings the demise forward. The present world situation is not promising, the turmoil in the middle east, the associated increase in oil prices, these factors effect us at the very root of our economy particularly given our reliance on these goods. On the plus side we are exporting a lot of raw materials to China.

The thinking behind this process is that by retarding the excessive growth the overall period and depth of the recession is shortened, hence Mr Keatings comment. The recession was inevitable, the belief is that because of the measures taken the impact was reduced.

17.5% interest rates are not fun and whether or not the Reserve Bank lost the plot or not in the 80's I still can't say, the Australian economy is after all very resilient.

For our part we are now looking at fixing our rate. The question is, what term should we be allowing for?

Regards

Andrew

 

[gigigoodyear]

recession

What are your opinions on this, and if we do have a recession, how long do you think it will last, and what will happen ie rates etc during this time.

Pricey

We're right in the middle of it and it's called stagflation.

Movie ticket 3 mths ago = up 12.5%
Bus fare 6 mths ago = up 5.8%
1 L bottle of diet coke = up 6.25%
Favourite Chinese take away meal = up 10%
M3 Money supply = up 10%
Petrol up, insurance up, dental fees up yadda yadda yadda Etc. Economic growth 2-3%? You don't need government economists to tell you what is happening when its staring you right in front of your face and you're living in it!!!!

My salary = up 5% only and it is definitely not keeping up with the cost of goods and services inflation.

People just can't handle the truth!

 

[kero]

hey for those living in Perth, the Sunday papers is now $2!

 

[XBenX]

We're right in the middle of it and it's called stagflation.

Movie ticket 3 mths ago = up 12.5%
Bus fare 6 mths ago = up 5.8%
1 L bottle of diet coke = up 6.25%
Favourite Chinese take away meal = up 10%
M3 Money supply = up 10%
Petrol up, insurance up, dental fees up yadda yadda yadda Etc. Economic growth 2-3%? You don't need government economists to tell you what is happening when its staring you right in front of your face and you're living in it!!!!

My salary = up 5% only and it is definitely not keeping up with the cost of goods and services inflation.

People just can't handle the truth!

Growth still occuring (real GDP growth)
Historically low unemployment.
Headline inflation just outside of target band.
Wage growth continueing

If you wish to confirm this the RBA will kindly update these charts for you on Wednesday. http://www.rba.gov.au/ChartPack/index.html

That is not no or negative growth, unemployment and high inflation - which is stagflation.

Unfortunately the RBA stats dont align with your incidental evidence - a sample group of one.

 

[TomL]

17.5% interest rates are not fun and whether or not the Reserve Bank lost the plot or not in the 80's I still can't say, the Australian economy is after all very resilient.

What was the REAL interest rate though ... wasnt inflation way up high too??

I'd like to see a chart over the last 40 odd years showing inflation vs interest rate.

PS .. high inflation and high interest rates dont necessarily mean plunging property prices. I recall reading a study a while ago on this very topic. Will have to see if I can dig it up.

We live in interesting times anyway

T.

 

[RichardC]

Quote:
Originally Posted by Bargain Hunter
17.5% interest rates are not fun and whether or not the Reserve Bank lost the plot or not in the 80's I still can't say, the Australian economy is after all very resilient.

The 30 day bank bill went to about 13%. But it wasn't our Paul to blame it was the US's Paul (Volker) who did it.

Mr Howard will blame external factors for any interest rises happening on his watch in spite of never conceding such for Labor governments. Just politics.

One big problem I see is that the big deflator, cheap imports of manufactured goods, is coming to an end. China is reining in excess manufacturing and has revalued the renminb (10%?) and this trend will continue.

 

[Kingbrown]

hey for those living in Perth, the Sunday papers is now $2!

For those of you living in Perth who are property owners, by the time you have finished reading the Sunday paper, your equity just went up $5.

 

[gigigoodyear]

stagflation

Growth still occuring (real GDP growth)
Historically low unemployment.
Headline inflation just outside of target band.
Wage growth continueing

If you wish to confirm this the RBA will kindly update these charts for you on Wednesday. http://www.rba.gov.au/ChartPack/index.html

That is not no or negative growth, unemployment and high inflation - which is stagflation.

Unfortunately the RBA stats dont align with your incidental evidence - a sample group of one.

I see what I see and this is my experience. Don't be a lemming and believe everything you read from the RBA and the media but test it out based on reality around you. It's called critical thinking.

RBA stats have a lag time between collection, analysis and publication. Why should I wait until the last two quarters of negative growth so that we can declare that we are officially in an inflationary recession when I can already see it happening around me? If people want to wait and live with the illusion that everything is hunky dory then go ahead and live in the matrix until the government tells you it is not so. I prefer to know the bad news now so I can plan and find the appropriate solution to the problem ahead of the herd.