Politicians who deny economic reality destroy their constituents


The local mayor, state MP and federal MP for Mandurah, Western Australia, have attacked the Interests Of The People (IOTP) show “The Economic Massacre of Mandurah” for exposing that their city is the leading edge of Australia’s housing and economic crisis.

The show featured independent economist John Adams and CEC Research Director Robert Barwick briefing host Martin North on their recent visit to Mandurah, where they witnessed streets littered with For Sale signs, and were informed by locals of the area’s serious economic and social problems, including the worst drug problem in the state. Martin North shared his comprehensive survey data of Mandurah’s 30 per cent house price falls, and more than 40 per cent unemployment and underemployment.

In the 17 July Mandurah Coastal Times, Federal Liberal MP for Canning, Andrew Hastie, attacked the show as “over the top”.

By contrast, the show struck a chord among WA locals, with many expressing that they know the show is right. “We’re seeing exactly what they say as fact in this town”, said local sport store owner Hayden Burbidge to Perth’s biggest radio station, 6PR, on 12 July.

The online Daily Mail also covered the show, in an 18 July article headlined “Economists drive through WA town counting endless ‘for sale’ signs on properties revealing the true extent of Australia’s housing crisis”.

The problem for Andrew Hastie, who is known to be personally very concerned about the situation in Mandurah, is that if he publicly acknowledges the crisis, he will be contradicting the claims of his own government. The Morrison Coalition government is both denying the crisis, and hustling the population to scam them into thinking that another housing boom is about to start and so they should rush out and buy houses.

They are preying on young households in particular, to lure them into thinking now is the right time to buy their first home. To do so, Assistant Treasurer and Housing Minister Michael Sukkar is trying to spread fear among young families—fear of missing out!

He is urging them to rush out and buy their first home now, before the government’s 5 per cent deposit scheme starts in January. Prices will skyrocket, Sukkar is implying.

“Housing Minister Michael Sukkar has urged first-home buyers to try to snap up a property now, ahead of the government’s signature loan deposit scheme starting next year, warning that housing prices are likely to increase”, Rosie Lewis reported in The Australian on 18 July.

“If you’ve got an opportunity to get a foot in the market before then you should take it, given I think the market is starting to improve,” Mr Sukkar told The Australian. “People who buy now I don’t think will regret it at all. A re-elected Morrison government has put a lot more confidence into the market. We’re seeing green shoots in Melbourne and Sydney in the last quarter and I think with low interest rates, with APRA reducing service-ability buffers, all those factors combine to confirm that optimism.” (Emphasis added.)

Sukkar might be confused. There are green shoots in the housing market—green shoots of weeds taking over abandoned greenfield developments in Sydney and Melbourne from the more than 25 per cent defaults from people walking away from their deposits, unable or unwilling to pay the balance and start building a home.

More likely, Sukkar is not confused, but along with the rest of the government is desperate to con people into the market, in the hope that a rush of buyers will start pushing up prices again.

The question is, if it doesn’t work to drive up prices, and the thousands of buyers who’ve followed Sukkar’s advice find themselves trapped in negative equity, will the Morrison government pay their debts for them?

WA shows that negative equity is a very real danger from these low-deposit schemes. The state’s Keystart program helps people into the housing market with a 2 per cent deposit, but a higher introductory interest rate. After a few years of building equity, the borrowers would refinance at a lower rate with a commercial bank. It worked for years… while prices were going up. Since prices have been plunging, however, all it is doing is trapping borrowers in negative equity and high interest rates, because commercial banks are unwilling to refinance their loans if they have no equity.

The insanity of the Morrison government’s approach is that it is trying to put off a crash by reinflating an already overstretched bubble. In reality, the bubble will burst, and it must burst, and house prices must fall a very long way so that once again they become truly affordable, without households chaining themselves to huge, unpayable debts. The longer politicians put it off, the worse the eventual crash will be, and they will destroy their constituents.


What politicians should be doing is implementing economic solutions before the crash. The CEC has drafted a number of pieces of legislation:

to reform the banks and protect their customers through a Glass-Steagall separation of banking from speculation;
to put a freeze on foreclosures on family homes and family farms while the unpayable mortgage debt is reorganised and written down to affordable levels matching the true value of the property;
to direct the Auditor-General to urgently audit the banks to ascertain their true exposure to this crisis, and what needs to be done to clean up their books; and
a national bank to invest in productive infrastructure and industries, in order to restructure the economy away from its current focus on financial services, housing construction and raw materials exports, and back to being a powerhouse of manufacturing and agricultural production. 

To fight for these solutions, join the CEC!

Click here to watch the IOTP response: The Mandurah Establishment Attacks Adams and North https://www.youtube.com/watch?v=et8N33RbOzw&feature=youtu.be

Why has New Zealand suddenly guaranteed bank deposits?

Australians and New Zealanders alike should be very concerned about what’s happening in NZ’s banks, which are owned by Australia’s.

In a special episode of the CEC Report, Robert Barwick has interviewed real estate and financial expert Joe Wilkes, a veteran of the 2008 financial crisis in London now living in NZ, who is sounding the alarm about the NZ property market and banks. Click here to watch: What the hell is going on in Kiwi banks?

The New Zealand government has suddenly announced it will establish a guarantee for retail bank deposits, up to a limit of between NZ$30,000 and NZ$50,000. New Zealand has never had a deposit guarantee, except for a temporary one during the 2008 global financial crisis. The Reserve Bank of New Zealand (RBNZ) has always taken a hard line against a guarantee due to fears of “moral hazard”—that guaranteed banks would take more risks.

So why implement a guarantee now? Is it for the same reason the Reserve Bank of Australia slashed interest rates twice in two months to a new all-time low of 1 per cent? Is it an emergency response to a crisis they don’t want to publicly acknowledge?

Bail-in capital of the world

The guarantee is especially significant, as NZ is the bail-in capital of the world. It has the most explicit bail-in scheme to confiscate deposits to prop up failing banks, called Open Bank Resolution (OBR).

The RBNZ prides itself on its hard-line insistence on strict “market” discipline for the banks. It justifies the OBR bail-in system, for instance, by defining a depositor not as someone who has entrusted their money to the bank for safekeeping, but as an “investor” who has “freely invested in a private institution and has enjoyed a return on that investment whilst accepting the risks associated with the investment”.

This definition does not reflect how bank customers understand the relationship, which is one based on trust; moreover, it is a joke when assessing the “return” the “investors” have supposedly “enjoyed”: miserly deposit interest rates in no way compensate for the risk of bail-in. Worse, most Kiwis have no idea that their deposits can be bailed in (just as they had no idea that their deposits weren’t guaranteed), so how can they be expected to make a proper assessment of risk?

Unfortunately, Kiwis should not assume that the new guarantee will protect their deposits from bail-in. Unless it states so explicitly in legislation, the guarantee is only for paying out depositors when a bank fails, whereas bail-in is imposed before a bank fails.

Once-in-200-year event!

While the OBR bail-in system has been in place for several years, the RBNZ has also recently taken emergency measures to shore up the banks.

Earlier this year the RBNZ announced it wants the banks to dramatically increase their tier-1 capital—their buffer against losses—from 8.5 per cent, to 16 per cent. RBNZ governor Adrian Orr justified this steep increase by saying he wants the banks to be able to survive a once-in-200-year event.

The question is, just what sort of event does Orr anticipate?

The NZ banks and their Australian parents aren’t happy. In a submission to RBNZ against the higher capital requirement, the NZ Banking Association (NZBA) decided to side with their depositors, and say that they shouldn’t be required to have more capital for the same reason depositors shouldn’t be bailed in—that the RBNZ is responsible for anticipating crises, and therefore should bail the banks out.

It’s a bit rich that the banks are only defending their depositors against OBR bail-in now that they are being required to raise more capital. After all, OBR has been discussed since 2011 and has been in place for a number of years. Their argument against bail-in, however, is right.

Here’s what the NZBA submitted, in the form of an analysis by the Sapere Research Group:

“We have some concerns that the OBR is being assumed to provide a ‘bail-in’, whereas it seems to us highly unlikely that any government would allow all depositors in a major bank to take a haircut. Depositors would have a right to argue that the Reserve Bank should have seen this coming and that as the government’s designated regulator of the banks, the government should take the hit rather than the depositors. Depositors are poorly placed to monitor the performance of their banks in contrast to the regulators who have better information and a duty of care to the depositors. Requiring banks to hold additional Tier 1 capital would seem unlikely to be the most efficient method for managing these risks.” (Emphasis added.)

While the specific argument against bail-in is spot on, using it to argue against more capital didn’t wash. At a press conference on 29 May, Governor Orr ridiculed this submission as “astounding” and reiterated RBNZ’s insistence on more capital. The bottom line for NZ depositors is: expect to be bailed in, because the NZ authorities are going to need all the money they can get to prop up their banks!

The “once-in-200-year” event that Orr fears could come from multiple sources, or a combination of all of them. New Zealand like Australia is at the mercy of the global financial system, which is threatened by the crisis in Deutsche Bank, the fallout from the US-China trade war, and the US$1.2 quadrillion global derivatives bubble. As of the last time NZ’s bank derivatives were reported, in 2015, the country’s exposure was NZ$2.77 trillion.

New Zealand’s banks are also at the mercy of their Australian parents, which are staring down the barrel of a collapsing housing bubble that will likely bankrupt them; in the event of a crisis in the Australian banks, they are able to raid their NZ subsidiaries for capital, which could trigger a NZ crisis.

And NZ is capable of causing its own crisis, which, as in Australia, is likely to come from the deflating housing bubble that is as big in NZ as in Australia. As Joe Wilkes has often reported on Martin North’s Digital Finance Analytics YouTube channel, Auckland and Wellington had some of the highest prices in the world, but are now falling, and many large developments have ground to a halt. This is as much a crisis for the over-exposed banks as the over-extended borrowers trapped in negative equity. And the signs are especially bad for the largest bank, ANZ, which has most fiercely resisted the higher capital requirements; like its Australian parent it is hiding its derivatives exposure, and has suddenly lost its chief executive in the sort of scandal that seems to happen when a bank is covering up deeper problems.

Like Australia, NZ needs bank reform, starting with a Glass-Steagall separation of deposit-taking banks from speculation. Kiwis should join the Australian campaign for bank separation and contact their NZ MPs to demand they scrap bail-in and instead adopt Glass-Steagall to make the banks safe.

Click here to watch: What the hell is going on in Kiwi banks? https://www.youtube.com/watch?v=KLIaKiysPrQ&feature=youtu.be

Frydenberg and Hume—the Deutsche Bank dunces in charge of your financial security

As the Citizens Electoral Council has exposed, the Australian government’s extensive police-state powers, which last week were used to raid journalists, are intended not to protect people from terrorism, but to protect the establishment from the people. This is especially true in times when worsening economic conditions drive an anti-establishment backlash.

The reason there is a danger of an anti-establishment backlash is that the ever-arrogant establishment always rigs the system in its favour. In times of economic crisis, the public wises up to this fact. For an example in Australia, look no further than the government ministers in charge of the financial system, Treasurer Josh Frydenberg and Assistant Minister for Superannuation, Financial Services and Financial Technology Senator Jane Hume, both ex-Deutsche Bank executives.

Australia’s bankers have just come through one of the most damaging episodes in their history. The Hayne royal commission exposed the banks as vast criminal enterprises, just like the banks in Wall Street and the City of London etc., except until the royal commission Australia’s banks were supposed to have been the best in the world. The Rudd-Gillard-Rudd-Abbott-Turnbull governments had always said they were the best, and for years denied there was any need for an inquiry. When growing public unrest forced an inquiry, their denials were exposed as lies, and for once, the banks faced real justice. Read the rest of the article here:


Hands off our bank deposits—stop ‘bail-in’!

If you don’t sign any other petition from me, sign this one. No point in letter the average member of the public prop up the criminal bankers!

With panic breaking out in the financial system, the danger grows that bank customers will have their deposits “bailed in” to save desperate banks. The Citizens Electoral Council is escalating its fight against bail-in with a new petition calling on Parliament to scrap bank regulator APRA’s existing bail-in powers and stop the plans that are under way to legislate stronger bail-in laws.
Sign the electronic version below.


Major parties resort to extreme measures to protect banks

(This is (one of many reasons) why we want the major parties out on their ears!)

On 8 May the Senate Economics Legislation Committee released the report of its inquiry into the Banking System Reform (Separation of Banks) Bill 2019, opposing the policy. On 12 May Prime Minister Scott Morrison announced a scheme for first home buyers to purchase a house with only a five per cent deposit. The Labor Party supported the government on both issues. By these actions, as opposed to their rhetoric, the major parties have confirmed that 1) the economy is heading for disaster; and 2) they remain captive to the banks and will therefore sacrifice the livelihoods of the Australian people and economy to protect the banks and prop them up.


Disaster looming in housing and banks—what’s Canberra going to do about it?

Australia faces an unmitigated disaster in the housing market and, consequently, the banks. Every indicator in the housing market is suddenly very bad. What we are witnessing is shaping to be a bigger property crash than the 1890s depression. And like the 1890s land crash, when most Australian banks failed, the banks today are in deep trouble, from their massive exposure to mortgage lending and derivatives on that lending.

With a federal election under way, why isn’t this an election issue? The political establishment is deliberately ignoring it, assuming that the Reserve Bank will magically solve the problem through various forms of money-printing that will be futile but will, as outspoken economist John Adams charges, “rape the dollar”. But be under no illusion: this coming crisis is also the reason the government and Labor rushed through “bail-in” laws in February 2018, which give bank regulator APRA the power, in coordination with the RBA and the Bank for International Settlements in Switzerland, to prop up the banks that will soon start to fail by confiscating the deposits of their customers.

Housing catastrophe

The only reference to this looming disaster in the election campaign is in relation to Labor’s negative gearing policy, which the Liberals claim will crash the housing market. No, it won’t be the cause of a market crash, because that is already happening—right now!

As of April 2019, CoreLogic’s figures show average price falls from the peak of the market in capital cities are 9.7 per cent. The two biggest markets, Sydney and Melbourne, are down 14.5 per cent and 10.9 per cent respectively. Melbourne’s fall started later than Sydney’s but is going faster—in fact, Melbourne prices are falling the fastest in its history.

CoreLogic, the media and property spruikers have jumped on figures that show the falls are slowing down: the national market was down 0.5 per cent in April compared with 0.7 per cent in March, 0.9 per cent in February and 1.2 per cent per month before that. Headlines proclaim the market is “through the worst”. More likely, however, the figures are being distorted by the rise in unreported sales results. Experienced property analyst Louis Christopher of SQM Research tweeted on 4 May: “Don’t be fooled by the artificially high clearance rates, today. Very high unreported rates meant the real auction clearance rate was considerably lower. I think right now, dwelling prices in Sydney and Melbourne are still falling. There remains much uncertainty out there.”

From all other indicators there is no sign of anything that can halt the plunge:

In April, credit growth into housing dropped to the lowest rate on record—just 4 per cent. Because the housing market is already a bubble, this figure needs to be much higher to push up prices, but following the royal commission banks have tightened their lending standards. For instance, according to CBA’s online “how much can I borrow?” calculator, for an income of $80,000 the bank will now lend around $350,000, compared with $460,000 in November 2017. Prices will only grow if the banks are willing to lend higher and higher amounts, not lower. For that reason, APRA is being lobbied to lower the benchmark interest rate at which loan affordability must be calculated from 7.25 per cent to 6 per cent, but that doesn’t mean that cautious banks will suddenly be willing to lend more.

Defaults on greenfield development lots in Melbourne soared to 27 per cent in the March quarter, up from 2 per cent a year ago, and 12 per cent before Christmas; Sydney is almost as bad at 26 per cent. These are investors running away from their deposits, rather than paying the balance on lots that are plunging in value. Ground Zero for the looming crisis in new developments could be the far northern Melbourne suburb of Donnybrook, which has the highest mortgage stress in Victoria and where sales in 2019 have fallen off a cliff—multiple greenfield developments are being laid out along Donnybrook Road that someone has to pay for. Click here to watch John Adams and Martin North’s newest video post: Heaven Help the Poor Souls of Donnybrook!

Dwelling approvals in March 2019 fell by 27.3 per cent from March 2018, and 15.5 per cent from February 2019.

Mortgage stress and mortgage delinquencies are on the rise, despite low interest rates and, supposedly, low unemployment and inflation. ANZ admitted last week to an inexplicable jump in 30-day and 90-day arrears on repayments, with the biggest 90-day increase in Western Australia. Establishment economist Christopher Joye proclaimed in his 25 March great debate with John Adams that “mortgage repayments as a share of income are actually quite low” and that record mortgage “debt serviceability, at this point in time, is perfectly fine”. But a few weeks later Joye revealed on the professional social media platform LinkedIn that his analysis for his clients was that risks on residential mortgage-backed securities (RMBS) are “rapidly rising” and that mortgages have “the highest arrears rates since the GFC”. Meanwhile, over a million households are in mortgage stress, which means they are struggling to meet monthly repayments that are way over 30 per cent of their income.

The number of households in negative equity, meaning that they owe more on their mortgage than their home is now worth, is also soaring. This doesn’t just leave households underwater, but it has a knock-on reverse “wealth effect”, as much consumer spending of recent decades came from homeowners borrowing against the equity in their homes, which they can no longer do. Contrary to the statistics, real inflation as seen in the rising cost of living is not low, and neither is real unemployment when underemployment is taken into account, so the drop-off in consumer spending is going to be devastating to the already fragile economy.

Australia’s major banks have concentrated around 65 per cent of their lending in mortgages, far higher than any other banks in the world. On top of that, they have made trillions of dollars of derivatives bets on those mortgages, which three of the Big Four are trying to hide. They are in near danger of a massive crash, but the only preparation that authorities have made is the bail-in laws they snuck through Parliament in February 2018 so APRA can seize deposits in an emergency to try to prop the banks up.

The government should be tackling this crisis head on, drawing on the lessons of the 2008 crash in places such as Ireland and the United States. If the authorities in those countries could have acted before the crash to avert a disaster, what would they have done?

First, accept the necessity for a major government intervention into the banks, which the government will have to bail out anyway.

Impose a firewall between the banks and the real economy with a Glass-Steagall separation of normal commercial banking from the speculative investment banking where the banks hold their dangerous derivatives—that way the investment banking side can collapse without impacting the real economy.

Scrap any plans for bail-in, and place the banks under government administration to fully protect depositors and the daily business of banking while they are thoroughly cleaned out and reorganised.

Direct the Auditor-General to audit the banks in depth, to ascertain the true size of the bad mortgages and other bad debts, and the nature of the derivatives contracts that will need to be unwound and cancelled.

Enact a moratorium on foreclosures and repossessions of family homes to avert a social catastrophe until house prices stabilise and mortgage debts can be written down to reflect the new, much lower prices.

Start planning and executing changes to the general economy to move beyond its present concentration in housing bubble-related construction and financial services, beginning with a nation-building infrastructure construction program, financed by a national bank, which can revive and revitalise regional industries and towns and draw population growth away from the overcrowded capital cities. 

These are policy solutions the Citizens Electoral Council is fighting for, in this election campaign and beyond. Either ignore the crisis at your own peril, or join the CEC today in fighting for these solutions.

What you can do

With the election under way, contact all of the candidates in your electorate to ask:

What are you doing about the housing and banking crash?

Will you oppose and repeal bail-in?

Will you support the CEC’s Banking System Reform (Separation of Banks) Bill 2019 https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=s1172, which is currently before the Senate, to break up the banks?

Ex-banker Jane Hume is rigging Senate inquiry into bank separation—she must go

The Australian Senate committee inquiry into banking separation is being rigged to protect the banks—yet again. It is suppressing the true scale of popular support for the policy by only publishing a fraction of the submissions it is receiving. And it is refusing to hold public hearings to question the growing number of experts who publicly support banking separation.

After the revelations of the banking royal commission proved that the government had covered up bank misconduct and crimes for years, it is unconscionable that it would continue to suppress serious examination of banking issues. However, that is what Liberal Senator and ex-banker Jane Hume is doing as chair of the Senate Economics Legislation Committee, to its inquiry into the Banking System Reform (Separation of Banks) Bill 2019: https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/BankingSystemReform

The Citizens Electoral Council demands that Senator Hume recuse herself as chair of the Senate Economics Legislation Committee, on the basis of her clear conflict of interests, or be replaced. Her Liberal colleague on the committee, fellow ex-NAB banker Arthur Sinodinos, should also recuse himself or be replaced.

If you wondered why the Liberals ignored evidence of banking misconduct for years, and aggressively protected the banks from any inquiry into their crimes, look no further than Senator Hume and the other ex-bankers who dominate the top ranks of the government, including Treasurer Josh Frydenberg, and former Financial Services Minister Kelly O’Dwyer, who take key positions in government and parliament to ensure ongoing protection for the banks. According to Senator Hume’s parliamentary biography, of which her own staff seem to be ignorant as they have claimed to constituents that she wasn’t a banker, she had a ten-year career in banking and investment banking prior to entering Parliament, including as:

Investment Research Manager, NAFM (NAB), 1995-98
Private Banker, NAB, 1998-99
Senior Manager, Rothschild Australia, 1999-2003
Vice President, Deutsche Bank, 2008-09 

Upon her election to the Senate in 2016, Senator Hume didn’t have to wait any time for advancement, but was immediately given control of the important Senate Economics Legislation Committee, which analyses all legislation related to banking. As the Liberal Party controls the committee, Senator Hume effectively dictates all of its key decisions.

Hume ran the 2017-18 inquiry into the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill, which rubber-stamped the government’s plans to empower the Australian Prudential Regulation Authority (APRA) to prop up failing banks by seizing the savings of their creditors and customers. The Senator falsely claimed it isn’t a bail-in law (contradicted by legal advice available from the CEC), and she was one of only eight Senators present when it was snuck through Parliament on 14 February 2018.

Now Senator Hume is in charge of the inquiry into the Separation of Banks bill, which Bob Katter MP and Andrew Wilkie MP first introduced into the House of Representatives on 25 June 2018, and Senator Pauline Hanson introduced into the Senate on 12 February 2019.

This is a very important inquiry following the banking royal commission. In his final report from that inquiry, Commissioner Kenneth Hayne did not recommend structural separation of the banks. In truth, this was because the government and banks rigged his terms of reference, which forbade him from investigating structure. Nevertheless, almost all of the misconduct and crimes exposed by the royal commission resulted from the integrated structure of the banks, so while the inquiry was under way, three of Australia’s big four banks announced plans to voluntarily break up. But that was a ruse. In their final submissions to Commissioner Hayne, all of the major banks insisted they should not be forcibly broken up. And when it was leaked that Hayne’s final report did not recommend separation, bank shares soared, and the two-faced bankers who had announced they would demerge started finding excuses not to—as every bank critic had predicted they would.

This rigging of the royal commission triggered a massive backlash, however. Most of the anger has been levelled at Hayne’s failure to break up the banks, including by former prime minister Paul Keating, leading financial commentators Alan Kohler and Michael Pascoe, former ANZ director John Dahlsen, and many others. Amid that uproar, Pauline Hanson introduced the Separation of Banks bill into the Senate and got it referred to the Economics Legislation Committee for an inquiry.

This inquiry should be the investigation of banking separation that the royal commission wasn’t allowed to be. It should take as long as necessary. It should publish all of the submissions, which demonstrate both public support for the policy and the level of expert support. Most importantly, it should hold public hearings, so the Senators can question all of the experts in depth and thus get a full understanding of the issue, and not just the bankers’ and Treasury’s biased view.

On behalf of the banks and their protectors in the government, however, Senator Hume’s task is to kill this inquiry, and that is what she is doing. As well as suppressing the publication of submissions and refusing to hold hearings, she appears to be sticking to the original scheduled reporting date for the inquiry, of 13 May. Yet that means the inquiry will have to be conducted in the middle of the impending election, which is an impossibility. It will be a farcical inquiry that just goes through the motions, which benefits nobody—except the banks.

The CEC demands:

that Senator Hume recuse herself or be replaced as chair of the committee;
that the committee publish all of the submissions it receives;
that the scheduled reporting date be extended until well after the upcoming election; and
that the committee hold proper, in-depth hearings to listen to the views of experts who can explain the benefits of separation, including former competition regulator Professor Alan Fels, former ANZ director John Dahlsen, former APRA Principal Researcher Dr Wilson Sy, banking expert Martin North, the CEC, and others. 

What you can do

Make sure you make your submission to the inquiry by the deadline of this Friday, to maximise the public support for this bill. If you haven’t made your submission yet, include the demand that the committee hold public hearings.
Call or email committee chair Senator Jane Hume and deputy chair Senator Chris Ketter to demand they publish all submissions; extend the reporting date until after the election; and hold public hearings. They are in Canberra this week, so call their Parliamentary offices:

Sen. Jane Hume
(02) 6277 3123

Sen. Chris Ketter
(02) 6277 3065


Housing Bubble

And this just in:

An Australian housing and economic bust is reality—time to act

Australia’s housing market is tanking fast and the economy is facing an Ireland-style economic bust. We must act, now, to avert a social catastrophe and restructure the financial system to fix the cause of this crisis.

Australia’s big four banks account for 80 per cent of the financial system, and mortgage lending is around 65 per cent of their business. This concentration on housing is the highest by far of any banks in the world. Thanks to decades of deindustrialisation, financial services is the biggest sector of the economy, and, thanks to the housing bubble, construction is second. A crash in housing is economic Armageddon.

The fall in house prices that started in late 2017 continued all through 2018, and has now accelerated in 2019, with the biggest falls in the biggest markets of Sydney and Melbourne. Melbourne is experiencing the fastest falls ever recorded. The real estate sector is desperately trying to talk up the market by wheeling out improved auction clearance rates and highlighting one-off large sales, but the auction figures are distorted by very large numbers of auctions that are not being reported, and real estate reporters have been caught out faking claims.

The downturn is being blamed on bank lending, but that is only half the story. The real issue is the borrowers, the Australian people, who are saturated in debt.

Banking and real estate analyst Martin North of Digital Finance Analytics, and economist John Adams, have recently posted important video presentations on YouTube which expose the reality of where Australia is at, and how bad it can get based on the Ireland precedent.

In “Just How Much Trouble Are We In?”, North reports the latest Bank for International Settlements (BIS) statistics on household debt. Australia’s household debt-to-GDP is now 120 per cent, higher than all equivalent nations and second only to Switzerland, and far higher than the USA, UK, and Ireland were in 2008 when they all experienced devastating housing bubble crashes. Australia’s household debt service ratio is also the second highest in the world, which is a measure of the mortgage stress being experienced by over a million households which are struggling to meet their repayments, despite record low interest rates.

We know from the banking royal commission last year, and the work of Denise Brailey of the Banking and Finance Consumers Support Association, and Lindsay David and Philip Soos of LF Economics, that the only way the banks were able to push the market up over the last decade was by ignoring household debt and committing outright fraud in their mortgage lending, based on grossly understated living expenses. It would seem they can’t do that now. As prices are still not back to affordable levels, though, where are the buyers going to come from to stop the price falls?

Economist John Adams tweeted the news on 7 March that the giant American bank JP Morgan last week flew its top housing experts in to Melbourne for a conference, and is telling its clients to get out of Australian real estate. This is ominous, as a 2017 report by the US Studies Centre at the University of Sydney, “Indispensable economic partners: the US-Australia investment relationship”, revealed that the United States has been the “overwhelming” source of the funding for the Big Four banks.

The fall in house prices, combined with the fall in the number of house sales, is hitting the stamp duty revenue of state governments. Stamp duty revenue almost doubled in the four years to 2018, such was the frenzy of buying in the housing bubble, providing a windfall to state governments. That’s now over. On current trends, Victoria could suffer a $1 billion hit to its budget this year, and NSW will also take a big hit.

Out of options?

The last time house prices were falling like this, back in 2008, prices were lower than now, and interest rates were far higher—the Reserve Bank’s cash rate was 7.25 per cent. In response to the falls, which threatened a banking crash, the RBA slashed its cash rate from 7.25 per cent to 3 per cent within a few months, which averted mass foreclosures and, combined with the Rudd government’s tripling of the First Home Owner Grant, drew a lot more people into the market. But that means that to save the market they created a lot more household debt, and effectively only “kicked the can” of a crash down the road. The can has now stopped, but this time the RBA rate is 1.5 per cent, so it doesn’t have the option of cutting rates by 425 basis points to save the bubble.

Another Martin North video, “A First Hand View from Ireland”, is a confronting account of the Irish housing bubble and banking crash in 2008. Financial commentator Eddie Hobbs relates the disturbing similarities between Ireland and Australia, which many expatriate Irish who migrated to Australia as economic refugees after 2008 are starting to see here. In a third video, “The Document that will Shock You”, Martin North and John Adams reveal that in 2007 the IMF had stress-tested Ireland’s banks for steep falls in house prices and large withdrawals of deposits, and announced they would survive both. Ireland eventually suffered house price falls of 50 to 70 per cent, and a massive exodus of bank deposits, and its banks collapsed, plunging Ireland into deep economic and social misery. Indebted Irish homeowners suffered through a hellish bankruptcy process, and the nation witnessed a spike in suicides.

Act now!

Australia’s government, financial authorities and banks are right now desperate to prop up the bubble again, but that would be insane, if it would even work. It’s time to acknowledge it’s a bubble and let it burst, but implement measures to protect the economy. The CEC is fighting to:

restructure the banking system to protect the public and stop such bubbles recurring, through a Glass-Steagall separation of banking from speculation, and a national bank to regulate banking and credit;
avert a social catastrophe with an immediate moratorium on home and farm foreclosures (not investment properties) to stop families being thrown out on the streets;
launch an infrastructure development program to create jobs and restructure the economy and employment back on to a productive footing. 

Join the CEC’s fight!

What you can do

Get involved in the fight, starting with the immediate campaign for a Glass-Steagall banking separation. The CEC drafted legislation that Pauline Hanson introduced in Parliament on 12 February, the Banking System Reform (Separation of Banks) Bill 2019, into which the Senate Economics Legislation Committee is now conducting an inquiry. Make a submission to that inquiry in support of banking separation today.

Click here for instructions on making a submission. http://cecaust.com.au/releases/2019_02_18_Submission.html