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STEP 1: How to PLAN for the coming BUST in the B-B-B Cycle

Written on the 14 October 2016 by James Cagney

I travel around Australia on planes a great deal. I am always vigilant and amazed at the rubbish some people read. Many read city and regional newspapers which concentrate mostly on what a bad deal their area they gets from the federal government, state governments and councils. They prominently feature local news, all sorts of inane gossip and of course sports news . The readers get an opportunity to agree with the whingeing of the public about anything and everything. Negativity abounds.

I also notice the number of people reading magazines which feature celebrities and their private lives. Who is separating and getting divorced? Who is cheating on their wives and partners? What are the Royals doing? Brad Pitt and Angelina Jolie snippets! What former wife Jennifer Aniston says about it? Who is having a face lift, a body tuck or plastic surgery? These readers are seeking to escape from their dull, uneventful and boringly unfulfilled lives.

I am astounded at how much nonsence people read!  Useless information (true or not) which will be of no benefit in the coming BUST in the BOOM-BUBBLE-BUST Cycle. Just my opinion!

What about the important news that is going to affect their lives in the next five years? What is happening in the economy, the stock market, the property market, the job market.   What about our balance of payments, demographic trends, spending trends, credit trends, etc.  What about the information which is going to help us survive the coming financial crises? Apparently this news is not as important as what these sensation seeking magazines and newspapers like to report.

What we do is pretend our economic problems do not exist. Or,  the future is so unpalatable that we would rather not even look at it. We are delude into thinking that if we forget about it 'it' will go away. Once again our attitude of "She'll be right mate" reigns supreme. I find it so frustrating that people prefer to bury their heads in the sand rather than face reality! My wife has to constantly remind me that mine is not the only opinion, and that not all people think like me!  Who can say what is normal?

The problem is compounded because the mainstream press will not tell you the whole truth because it is bad for business. They need advertising revenue to survive and bad news of a coming financial crisis is just not a popular subject. The large construction and building companies would not be happy if people stopped buying their oversuffer if people held back on spending and buying their goods - especially with easy credit terms, which tempt us to buy more than we can really afford. So the newspapers talk about superfluous matters which won't upset big business so they can rake in the advertising money.

No one wants to think about, talk about or write about a financial crisis that no one wants to happen especially the people who are responsible for it like the bankers and the politicians. Do you think our political leaders tell you the truth. That there is a big problem in our the economy right now and a financial crises is looming. It's bad for their popularity ratings. They cannot admit that today's economy is propped up by excess credit, liberally given by the international and local banks and already out of control in Australia. These politicians will  also have to admit that the whole system is vulnerable to a disastrous correction, just like we had in the Global Financial Crises in 2008. Not popular politics and not something a political party wants on their watch. Politicians in Australia are so busy fixing the symptoms instead of trying to fix the root cause of the problem

The words of Jack Nicholson from the movie A Few Good Men ringing in my ears: "You can't handle the truth".  Well it's time to face the truth and do something about your life. Start TODAY!

What I am going to do in this article is to follow the procedure for effective Goal Setting so we can PLAN for the coming BUST in the BOOM-BUBBLE-BUST Cycle. Think about it - if you were going on holiday is this what you would ask yourself:

1. Where are we now?
2. Where do we want to go?
3. How are we going to get there?
4. How much will it cost?
5. Can we afford the time and the money?

That is exactly how we PLAN our STRATEGY for our future

STEP 1: "Where we are now?" is where we will start. We will cover the following subjects:

1) Global government and private debt levels.
2) Our large Government debt.
3) A social system we just cannot afford.
4) A three tier government we can't afford.
5) Our increasing personal debt.
6) Self-serving politicians who are dodging the truth.

Global Government and Private Debt

  • The latest McKinsey study shows the world debt at US$200,000,000,000,000 ($200 trillion). Many experts believe it is higher. Vern Gowdie of port Phillip Publishing says "Add in the various unknown and unofficial shadow banking activities, plus the Western world's unfunded social security commitments, and the real debt tally is probably upwards of US$500 trillion (AU$694 trillion) resulting in a debt to GDP ratio of over 700%".
  • In 2008 the world buckled under a debt weight that is far less than today. Since 2008 the official average increase in global debt has been close to US$8 trillion each year. This equates to US$1 billion for every hour of every day being added to the debt pile. Governments and central bankers have (out of thin air) increased money supply by 30% over the past seven years. There is no way we can support that level of rising debt.
  • There is a saying "When the USA sneezes the rest of the world catches cold". Well we are about to get pneumonia.  The USA net foreign debt is reaching $60 Trillion. Former US Federal Reserve chairman Dr Ben Bernanke famously talked about dropping money from a helicopter if it were required to stop deflation. And, this is exactly what the USA Fed has done and worse still other countries have followed suit.

Australia's Large Government Debt

  • In the 12 months to June Australia's net foreign debt increased from $976 Billion to $1.045 Trillion. This includes commonwealth, state and private sector borrowings. While our net foreign holding of equity fell from $70 Billion to $8 Billion (an 89% drop) (Bureau of Statistics)
  • Since 2006 our net foreign debt has risen from $440 Billion to $1.045 Trillion an increase of 235%
  • Our deficit for 2015/16 was $39.6 Billion compared to the budget of $12.2 Billion.
  • The government net debt is $300 Billion.
  • The number of public servants rose in the last financial year (2015/16) despite the government telling us about cutting back. The Federal government is broke and the State governments are broke and they are selling government assets to pay for the luxury of keeping their jobs.  
  • Our AAA rating is in jeopardy according to the top rating global agencies. If we do not meet our fiscal targets we will lose our rating. If that happens and the International Monitory Fund and international banks call up their loans Australia will be on the same road as Spain, Italy and Greece.
  • Australia is part of the wider world. And most economies around the world are surviving on easy credit. Without credit, the wheels of commerce seize up. We experienced the havoc wrought in many countries (and almost in Australia) when the global debt caused the Global Financial Crises(GFC) in 2008.
  • Experts predict that if Australia continues on its economic course and does not pull in the reigns of social spending our debt by 2025 will be 353% of our Gross Domestic Policy (GDP). That is unsustainable and amongst the highest in the first world.

Our Social System which we cannot afford

  • Australians on the dole has risen 70% in the last decade as we move close to $200 Billion a year by 2019 /2020
  • Since 2005 the number on the dole has increased from 453,793 to 768.375 by March 2016.
  • The number of welfare recipients rose from 4.4 million to 5.2 million in 2015. That does not include families claiming family tax benefits. According to the Australian Tax office (ATO) we have 12.5 million income tax payers registered. Are you doing the maths?
  • The Coalition planed welfare changes to reduce spending and prevent about 100,000  bludgers abusing the system have been hampered by the Labour party. The good news is many of the independents have said they will support the bill to reduce abuse of the welfare system.
  • We should not be supporting able-bodied prople. Welfare was designed to take care of needy children, the genuinely disabled, the elderly and infirm and those experiencing crises situations.

Our increasing personal debt

  • The cost of housing, increasing utility bills, rates and taxes, groceries, child care are forcing more people into debt. The nation's credit card debt is $51.3 Billion.
  • Although some manage too pay their credit card debt before it accrues interest there is  $32.1 Billion accruing high interest rates.
  • We continue to pay high prices for property in the major cities which is placing strain on family budgets.
  • Property investors are looking for returns and rents have been increasing above inflation for the last decade.
  • Many investors in the stock market have done so by borrowing. When (not if) the market crashes again the banks will call in their loans (the bank is not your friend or partner) many will have to borrow on the equity in their home putting themselves more into debt.
  • Interest rates are at a 60 year low. The reason the Reserve Bank (RBA) has further decreased the interest rates is not to help you. It is to stimulate the economy by encouraging you to borrow more money, spend more, invest more and put more money into government coffers. Interest rates will rise again and many people will have to refinance or sell their home because they cannot afford the mortgage and the ever increasing rates and taxes.
  • In 1950 Australia's GDP in Australia was around $50 billion. Today it exceeds $1.5 Trillion. That's a fairly impressive 30-fold increase in economic activity.
  • However since 1950, Australian private debt levels have risen from 20% of GDP to today's level of around 160%an 800% increase in debt level.

I am not a stock broker or a financial planner and therefore cannot give you financial advice. What I will do is give you the facts and websites that you can go to get this advice. I am a licensed real estate agent, and a principal of IRPS Associates Pty Ltd T/A Australia Hot Property. I am a credit representative for Asset Finance Services Pty Ltd.  I am licensed to give you advice on investing in property and advice on the most appropriate loans  to suit your personal circumstances. We do have reputable professionals within the Australian Investment Property Network (AIPN) to whom we can refer you:  i.e. accountants, financial planners, valuers, and more. Contact James Cagney on 0416 134 646 or click >>> HERE for more information.

When it comes to other investments I do prefer to leave it to the experts like Vern Gowdie of Port Phillip Publishing Pty Ltd.  I glean a great deal of my knowledge and material from them.This company has a number of publications to which you can become a subscribe. These will provide you with a wealth of information regarding shares, commodities, property and much more. I am a subscriber to one of their newsletters and recommend you do the same. There are a number of publications from which to choose.  We have no commercial arrangement with these publishers and receive no financial incentives for our recommendation. You can access their website on www.portphillippublishing.com.au

The next article I wrote focuses on the following step in the Goal Setting Process "Where do we want to go".  For this important next step click >>>> STEP2. Don't say you will do it later, tomorrow, on the weekend etc. etc. You do not have the luxury of time to prepare for the BUST, Do it NOW.

If you have not read any of the other articles I have written in the series on Inflation; Demographic Trends; Spending Trends; How the generations affect the BOOM-BUBBLE-BUST Cycle then go to www.jamescagney.com.au . Scroll down to the news section on the Home Page and click on the link to follow the series. 

DISCLAIMER

This is not financial advice. You should not act solely on the basis of the material contained in this Property Update for your investment strategies. Changes in government and legislation occur frequently and without prior notice and financial markets are unpredictable.
Please note that the information herein is of a general nature only and is not intended as specific advice for any particular person or entity.

This information was written and compiled by James Cagney.  The opinions expressed herein do not necessarily represent the views and opinions of his associates including
Asset Finance Pty Ltd.


Author: James Cagney
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