16 May 2009

Westpac Breakfast

Went to the post Budget Westpac breakfast talk by their Chief Economist yesterday. Short summary: worst environment in 70 years; recovery will be patchy and slow (maybe 3 years); but much more is being done this time compared to 1930s; we will get out of it and then business as usual; Australia better placed than US/UK re debt as % of GDP but current account deficit one of the worst in the world; Western Australia will hold up, but it will feel bad because growth will drop from 5% to 1% whereas the other states have already had to deal with and get used to decline; thought the first home owner's grant will be our subprime as it is sucking in people who should probably not be given loans.

Interesting to hear this and feel the mood of the business guys there (I think 4 women in all). A big contrast to the views of the blogs I follow. There is still a bit of hope/expectation that this is a bit of a recession and just tough it out for a few years.

I feel we are at a pivot point, with Governments doing all they (think) they can to keep people believing it will just be a bump and people don't want to hear really bad news so they want to believe it but still will be scaling back spending, you know, just to be safe.

Martin Armstrong recently told the story of a Japanese investor who bought into the market just at the peak. He asked why he did it and the answer was that the investor's broker had been telling him to get in for 6 years and finally he thought he should. Martin then says it is when the last person has piled in that a bubble busts. I think it is the same on the way down - not until the last person has lost hope will the bottom be found. The green shoots are telling us we aren't there yet. There are still greedy people out there wanting to make up their losses, or optimists that think we are at the bottom.

The question is whether Governments can pull the confidence trick off and keep the green shoots alive. If you don't think this is at all possible, I would suggesting reading this post of mine from last year. I don't think it is possible, but I also never underestimate the gullibility of the average person and their unwillingness to face unpleasant realities.


  1. Thanks for the report, Bron. What WA has going for it most of all is the neighborhood cohesion, local agriculture, good infrastructure (water, power, transport) and resources (oil & gas, minerals, gold). Could be worse.

  2. I do agree with that, the cohesion is not something that non-locals really understand especially if they live in big cities. I see the difference having grown up in Sydney and travelling back there often.

    As a result I don't think WA is properly recognised as a true "safe haven" like Switzerland.

  3. Hi Bron,
    Thanks for the report. Interested to see the comments re the First Home Buyers and from my perspective I have to agree, but was this your interpretation or did it come from Westpac? (legally and from a moral perspective how can they issue loans to these people while at the same time make such statements?)

    Comments about debt to GDP are interesting. In the research I did for my new book I found that in Australia we have more than double the debt to GDP level than in 1929 and its all private debt.

    Given that K Rudd is opting for public borrowing and trying to further stimulate private borrowing as well, then our debt levels are going to continue to blow out - Just how big can a debt bubble get?

  4. Those are my recollections of the slides but I didn't take notes. To be fair the comments about the first home buyers were not put in exactly that way, that is a bit of my feel of it.

    Bill Evan's comments were in reference to a slide showing a big increase in first home buyers as a percentage of home buyers, I think it was about equal to the investors category. He did make specific mention of some lenders over east still issuing 100% mortagages and that these were the same as subprime. He did not think they were good but the impression given was that it was what others were doing, not Westpac.

    I've checked out your website, seems you have had problems with Westpac. My dealings with them at a corporate and personal level have been good. From a perception point of view I would have placed Westpac as the most ethical of the big banks, but I'm sure you will spit chips at that and just see it as marketing spin.

  5. Hi Bron,
    Thanks for your follow up on that and for taking the time to have a look at the site.

    Yes I do have some personal issues with Westpac and I suppose that that was the catalyst for the book, however I look at the bigger issue of debt levels and money supply. In particular the effects to move to debt money creation after Nixon officially removed the link to gold (if you look at the money flows into Australia from the USA in the 1960’s though it’s obvious they were playing the game for quite a while before they eventually had to come clean)
    I believe that much more effort needs to be put into education around money, from the most basic points of the concept and history of money along with the different types of money and the impact of our current monetary policies.

    To me it’s amazing that one of the most important issues in our lives receives so little attention in our education system or media. Philosophically I believe the discussion about our monetary system should be a public debate.

  6. Craig,

    Educating people about the current monetary system and alternatives is one of the purposes of the recently formed http://www.goldstandardinstitute.com/