Thursday, December 18, 2008

Household wealth collapses - 25% and counting

AUSTRALIAN households have lost one quarter of their wealth since the global financial crisis began late last year, with the latest official count putting the carnage at a total $700 billion.

And the estimate, from the Bureau of Statistics, is conservative because it only covers wealth lost up until the end of September. Since then the S&P 200 Australian share price index has fallen a further 30 per cent.

In September last year, the average Australian had a net worth of $58,200, not including houses. By September this year it had fallen to $43,000, undoing three years of accumulation.

As the value of shares held by households slid, the amount put into banks soared, meaning that for the first time in five years more Australian wealth was held in notes, coins and bank deposits than in the sharemarket.

Separate Reserve Bank figures released yesterday showed Australians winding back their use of credit cards, with a drop in both the number of cash advances and the number of credit card-funded purchases over the past year...

The rush to shift money out of market-based investments and into interest-bearing deposits has led to a significant strengthening of the balance sheets of Australia's banks.

In the three months to September, a $4.4 billion increase in Australian banks' bad loans and impaired assets was easily offset by an increase of $141.7 billion in total assets.

"Australia continues to have one of the strongest banking systems in the globe," said CommSec economist Craig James. "Its consumers are becoming increasingly conservative."

The Chamber of Commerce and Industry, responding to fresh signs of a slumping economy, yesterday called on the Reserve Bank board to cut short its January holiday and hold an emergency meeting in the new year to cut rates earlier than planned.

The chamber's survey of industrial trends shows deteriorating employment and investment plans and increased difficulty in obtaining finance.

Business confidence fell to its lowest level since the 1990 recession. "We believe there is enough information available which points to the need for further interest rate reductions," said the chamber's Greg Evans.

Westpac, co-sponsor of the survey, disagreed. But its chief economist, Bill Evans, confessed to being shaken by the findings of the December survey.

"The last survey in September was relatively reassuring that businesses were not anticipating a repeat of previous recessions, but that's changed with the December survey," he said. "Conditions are deteriorating rapidly. What will happen will be determined by the interaction of the Government's stimulus packages, of which there will be more, and the negative effects of contracting wealth, falling confidence and tightening credit. The signs are not encouraging."

Budget data released yesterday suggests the Government has room to deliver further stimulus packages. The fiscal surplus remained high at $25 billion in the year to October, ahead of the $23 billion to next June forecast in the May budget.

Data also released yesterday showed Melbourne's outer-western suburbs had the city's worst unemployment rate of 5.2per cent. The most employed region was southern Melbourne, with a jobless rate of just 2 per cent.

7 comments:

iconoclast said...

Peter Martin,

you appear to be confusing assets and liabilities on the banks balance sheet.

Depositors funds are a liability to the bank not an asset.

Bill Evans is behind the curve, he has been wrong every single time.

Anonymous said...

Would be nice if the Chamber of Commerce and Industry had a think about why the economy is going the way of the dinosaur.

The gate of irresponsible credit provision was deliberately left open so that the horse called asset bubble could run rampant. Rather than solve the cause of the asset bubble and its virtual decimation of a viable economy, we are offered more of the same: encourage more horses, or rather investors to escape into an illusionary field of ‘free credit’ / low interest rates in the vain hope it will fix a crumbling edifice of business environment.

Protect the bubble at all costs.

“The chamber's survey of industrial trends shows deteriorating employment and investment plans and increased difficulty in obtaining finance” is a result of the protected bubble asset price, not some marginal interest rate movement. If interest rate cutting were the answer, Japan’s decade long experiment with virtual zero interest would not see them also in recession now. And who thinks the US interest rate cut to 0.3% will keep them out of recession?

As the Aus asset bubble is centred on an unsustainable private and investor property debt of $1082B ($674B Owner occupied and $308B Investor), and investor debt now generates about $50B (CGT & NG arrangements, land tax exemption) in tax breaks, see: http://www.aph.gov.au/Senate/committee/hsaf_ctte/report/c04.htm , then why does the CCI not expend some energy on pricking the bubble, rather than belay the public with delusional bleating out of requests to inflate the bubble economy further?

Over to you CCI.

djm said...

Does the ABS estimate of "household wealth" include superannuation savings?

iconoclast said...

Anonymous@11:43

Spot on!

It amazes me how these clowns don't see what is self evident and attempt to use the tool of sophistry to obfuscate what is self-evident.

Anonymous said...

iconoclast:

Exactly, perhaps CCI should rebadge itself as Chamber of Clowns and Industry

Peter Martin said...

Dear iconoclast,

You are correct. It would be the increased lending, not the increase in deposits that increased the size of the bank's cbalance sheet.

All the figures quoted are correct. In haste I grabbed for the wrong explanation.

Thanks.

Peter Martin said...

Dear djm,

The figures include "unfunded superannuation" but appear not to include funded superannuation.

I don't know why. I'll have to find out.

Kind regards,

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