"a) The cool aid test for debt vs asset value is that in a serious recession asset value drops but the debt doesn't. Take for example the plight of Ireland, Greece, Spain & Portugal during the GFC and the ensuing decade."That might be your preferred "cool aid test" but don't assume it is universally applicable.
The ability to service the debt is the real test.
Asset values can contract but as long as the debt can still be serviced all that happens is that the rate of household wealth creation stalls for a period.
But if debt servicing does become a challenge, then capital markets will reflect that and the cost of debt will adjust accordingly.
As for the plight of Ireland, Greece, Spain and Portugal during the GFC: that was because of well, exactly that: a global financial crisis. A pretty unusual and rare event of that magnitude.
If you think you are able to predict when another GFC will occur, then all power to you.
"(b) While house prices are appreciating at present, it does not mean that that trend will continue. Take for example what happened here between 1989 & 1997. House prices crashed in 1989 almost bankrupting our big 4 banks and gutting their mortgage/finance arms (remember Esanda, Comm Development Bank etc)"Again, if you think you can predict whether or when a housing collapse will occur, then you are infinitely smarter than not just me, but smarter than just about every other person on the planet.
If I had a dollar every time I heard this kind of gloomist view being propagated (invariably by people who want to sell me stuff, I find) about pending collapses in equity markets or stock markets or markets for other asset classes, I'd be inordinately wealthy.
Case in point, take perma-bear Nouriel Roubini, who has been predicting the world to go to hell in a hand basket for over a decade:
See:
https://www.erictyson.com/articles/20081024_1#.YKuVWKgzaHsA very smart investor I know once told me, "
Pessimistic people might get to sound smart, but optimistic people get to make money.""At present we are facing a double whammy: Covid & China Trade War .We have averted 2 consecutive quarters of negative growth by the Government pumping an extra $200 billion into the economy (10% extra of GDP) and without that we'd be in severe recession/depression now. Similarly for 2021-2022 the Government plans to pump in $166 billion extra into the economy (over 8% of the GDP).We all know that this is unsustainable ; just kicking the can down the road."Well, if the economy continues to grow over time, albeit with the odd period when it contracts modestly, that will create wealth for the citizens of the country, thereby keeping National and Household Debt-to-Equity ratios relatively constant.
Which will make the current level of dent is eminently sustainable.
(Unless you are forecasting more pandemics to occur in the near term.)
"The Comm Bank last week signalled an increase in mortgage interest rates which, IMO, is the first sign of our likely Japan disease (stagflation) of low growth and increasing interest rates. Stagflation has stunned the Japanese economy for over two two decades and even now Japan is carrying one of the highest sovereign debt/gdp ratio; a hangover from the early 1990s."Japan?
Japan is a totally different economic animal to Australia; it has numerous structural flaws including the most significant drag on economic activity, namely an ageing population with a zero immigration policy, meaning that the Japanese population has been shrinking for the past 15 years, having peaked in around 2006.
Not just that, but the aging population means that there are fewer young people to provide human resources to commerce and industry, while at the same time meaning the income tax base is shrinking.
The there's the matter of vastly different geographies and access to natural resources, as well.
Comparing Japan to Australia, you may as well compare an apple with an orange.
"While the USA can rely on massive money printing because its dollar is the reserve currency,we simply can't assume that our peso will behave in a similar way in response to our money printing (euphemistically spun as QE).All we need is a downgrade from AAA credit rating and IMO, we'll be off to the AUD devaluation stakesand with it the loss of our short term asset appreciation."We don't need a downgrade in credit rating to get the A$ to depreciate; a mere reduction in iron ore prices will do it.
But then all that will mean is that our exports become more competitive, as has happened every other time the commodity cycle rolls over.
So for an open, high-exporting economy such as Australia's, a weaker currency is not a bad thing; in fact, it acts as a shock absorber during economic slowdowns.
[Boy, how you get out of bed each day to face the world, with the pall of gloom and pessimism that has clearly infiltrated your mind, is difficult to fathom.
And PS., Beware the harbingers of gloom and doom... they are most likely trying to make a buck out of you.]
