Australia hasn't had a recession since 1992 - I was too young back then to be affected.
There is talk that a recession is likely in the near future.
For those who were adults, can you share any experience about what happens during a recession for the average person? Any personal experiences of what happened during that time? Did you lose your job and couldn't find another one? Did your business suffer? Did it have no noticable difference to your life at all?
It will be many years before we see interest rates that high again…probably decades.
The USA has US$22.5 trillion debt. It can't really happen again other than maybe a world war needing Ozzie bonds or apocalyptic hyperinflation. US debt was US$4 trillion in 1990.
It's interesting with Dear old Donald bringing USA to profit again, why the rate of debt accumulation is virtually identical since before GW Bush. Debt is still growing as if with indexing.
I watch the US Total Debt periodically, which has climbed to $74T under the king of cool Trump. Source: https://usdebtclock.org/
I love that the core of capitalistic economies constantly loses on avg $8M per minute year round. And has had to invade over 100 sovereign countries to steal their resources to maintain their growing bank debt rate. Winners.
@[Deactivated]: I probably wouldn't split or side with either party in the US. Any presidential candidate bullish about the future is in deep denial or has an ulterior motive. The US would need 100 consecutive record boom years and responsible budgets to get back to square on current debt when 3 good years used to be remarkable. I am wondering where all the lending is coming from.
@smashman42: China has been managing their US holding carefully.
https://www.cnbc.com/2019/05/16/china-has-cut-its-holdings-o…
It was in the vicinity of one trill back when they passed Japan and US debt was 14 ish trillion. The US has added 8 trillion in debt without China's holding growing massively.
Is that total debt? or just government debt?
I was reading that China's "total" debt has just risen in 2019 to USD$40 trillion.
Officially reported National debt of China is USD$5.2 trillion (excluding lots of things, for example local governments).
@Overall Hammock: The $40 trillion debt is circulating within the country. More like national banks loaning to national organisations.
@Overall Hammock: The generally accepted current government debt and intragovernmental loans that figure in the debt ceiling arguments. The US future obligations/unfunded liabilities, mainly future health care Medicare and Medicaid, are much bigger, US$70 trill ballpark and growing.
I used to be a big fan of Ronald Reagan - until I studied macro economics. He is rightly lauded for breaking the USSR and ending the cold war but on the economic front, he made decisions that are haunting the US today.
It will be many years before we see interest rates that high again
Mr Christopher Charles Skase had the same hope .. it didn't happen. Interest rocketed by the month.
is that a side effect of a recession that interest rates would reach those levels?
I would think that during a recession, the interest rates would be low to stimulate the market
I think the interest rates go up to stave off inflation, which is partly a cause of recession. But I really don't know (or care that much).
You're correct - in fact historically central banks (especially the Fed in the US) have precipitated recession by aggressively raising rates to stave off inflation.
Part of the logic is it generally is believed to take 9 months for interest rate changes to flow through the economy and if you wait too late, you risk inflation.
Post-GFC however, the Fed has arguably done the opposite (being too cautious in raising rates), although the reputed risk of inflation has not bourne out either.
@RedSky: Is the logic behind inflation/interest rate like this:
Inflation is caused by 'over' spending at the shops so we raise the interest rate so that people gives more money to the bank and has less money to spend at the shops… ?
@ThePasserby: Let me flesh that out a bit.
At a basic level - the categories/causes of inflation are demand pull (unexpected increase in demand causes scarcity so producers have to raise cost given they cannot meet demand in the short term) and cost push (cost of inputs to production increases e.g. oil prices and this pushes up the price of goods and services):
https://www.economicshelp.org/macroeconomics/inflation/cause…
The RBA changing overnight lending / borrowing cash rate through market buy / selling of government securities is really what we mean by raising (or lowering) interest rates. Bank rates flow from that and are often benchmarked against the overnight rate. They either buy bonds back (and therefore push more money into the economy) or sell them (reverse). The less (more) money flowing through the economy acts as an accelerator / break on spending, investment etc.
demand pull (unexpected increase in demand causes scarcity so producers have to raise cost given they cannot meet demand in the short term)
Technically demand pull is scarcity allowing producers to raise prices because buyers are willing to pay more as they try to out-bid each other for the scarce products. Producers don't have to raise prices (but there's no reason they shouldn't).
That wasn't '92. More like 1989.
Had money invested at that rate, great!!!
I can confidently say we will NEVER see 17% interest rates again. It's a baby boomer's dream that will never turn into reality. I know there are many boomers out there who think they'll pick up properties for cents on the dollar if rates hit those highs again, but I think it'll be a decade or more before the RBA's rate approaches 4%, let alone 17%.
Low rates are here to stay unless the government loses its mind and prints dollars like there's no tomorrow.
Correct. They would obliterate the economy with any significant rises anytime soon. Low rates are the new normal and probably for quite a long time as the market is so sensitive to any increases.
17% is a baby boomers nightmare as most of their wealth is in property. What’s worse is they would no longer be able to tell us youngins how tough they had it when rates were 17%.
I agree that we'll likely never see 10%+ rates again (at least within the next 40 years or so), and one of they key reasons for that is that so many people, particularly in Sydney and Melbourne, are carrying so much debt on their properties.
But the other side of that coin is that because people are carrying so much debt, it wouldn't take 10%+ interest rates to bankrupt them. The mortgage-stress rates already indicate that an RBA rise to only 2%, translating to about 6.5-7% on a house mortgage, will send most people bankrupt. That is the absolutely last thing the RBA wants to do.
Those are some scary numbers, considering 6-7% on a variable rate mortgage is an entirely plausible scenario.
"Modern Monetory Theory", as favoured by the right lately, suggests that printing money to cover debt is sound fiscal policy.
Of course it's not… But just so you know, it's theory de jour with those running the joint.
Never again.. for rates to get to 17% the economy would need to be going gangbusters for 10 years + and the rate rise would be to control inflation but low wage growth has fixed that issue and no wage growth = no need to worry about high rates.
HAHA this aged quick!! i own 2 new apartments with 3% rates
I think 1992 was just the start of globalisation and people learning that jobs weren't guaranteed forever.
But that was never the case then too
People tend to romanticize the past, remember the good, not remember so clearly the bad. Plus the nostalgia factor.
The 83 recession was much worse than the 92 one, it was minor in comparison.
And that was minor compared to the one in the and early 1930s.
I wouldnt know, i wasnt alive then, but i hear it wasnt fun.
On the contrary - I heard it was Great!
this recession is going to be much worse than anything we've seen ever before. Many people have debt levels out of control.
My mum and dad reck that too. last GFC my mum and dad made a mint of share market. pay cash for house 4 time size of nomail one. dad said to me they be another one cash is king
I understood some of those words
a nojunkmail one would be better, whatever size it was
That is my recollection as well. I was only 6 then but I remember my dad losing his job and being unemployed for about 6 months, even with a full trade and about 5 additional tickets behind him (and that was back in the day when a ticket actually meant something). He was just part of a very large group of people that lost their jobs and couldn't get another one because nobody was hiring.
In contrast I recall 1992 being mainly people losing their homes because of bad debt - people borrowing too much to buy houses that they couldn't afford (sounds familiar!) although I could be wrong, I had more pressing concerns when I was a 15 year old than the state of the national economy.
No, the one in the early 90s was much worse, the interest rates alone were soaking up most of what working folk brought home each week.
We lived through both, the second was far scarier and there wasn't the same quick recovery we had from the first.
Also, the second was followed by the first serious rounds of "economic rationalism" and privatisation, so many who had ridden out the recession sucessfully suddenly found their income had vanished.
You have to understand the cause of recession which in 92 was loan defaults aka bed debts.
It will be the same, only this time round it's the $7 trillion real estate hot air that is gonna blow everyone out of water regardless of you own a property or not.
It'll bring the entire economy down in a spectacular way.
ok so from the perspective of the average person, what does that mean? will people be losing their jobs? losing their house? will people be starving on the streets? what actually happens?
I remember people having to work three jobs. and small companies going bankrupt because other companies that owned them money had collapsed, like a domino effect.
If the average person has debts, they will suddenly be exposed to loan and margin recalls (because our beloved Banks love to sell us umbrellas during sunny days and will take them back AS SOON AS the clouds appear!).. investments will be lost - properties, shares - and they will have to sell personal assets to cover those losses etc.. sad.
Suddenly, the economy is shrinking because people are not spending now. Companies try to protect their profits by sacking employees and curtail spending. Unemployment rises. The average person loses his/her/its/their job… bad bad situation that continues to spiral.
If the average person doesn't have debt and job is unaffected, now those are the ones who are well prepared to profit from these times. You want to be in this category. Because suddenly, houses are so cheap, blue chip stocks are at rock bottom prices, Mercs and BMWs are selling for a pittance, flights and holidays are 2-3x more affordable and airports are so empty!! You now call the shots on what you get for your money.
So… what does that all mean for the average person today? That means if you think those "terrible times" are coming, cash up and dial back your spending now. Live frugally in anticipation of the glory in the near future.
So my house that I want to buy in 2020 will be cheaper than that I paid for it?
@[Deactivated]: Depends where it is.
If it is close to jobs and transport, probably not. People still need to live.
If it is in some rural 'holiday' area, very likely
What time to be alive.
Cool story bro
The recession of 2019 is already here and I am no pessimist.
People aren't spending and tightening their belts, businesses aren't doing well (look at the businesses that were once open but not, look at the businesses that were once doing well and now needing to resort to 'discount' apps to bring customers in).
Anyone buying full price is silly. Discounts are to be made anywhere and everywhere as a result of people 'tightening' up.
Anyone who has cash savings is actually going backwards after you pay tax on interest earned and take into account our 'low' inflation.
The only real winners here are anyone with home owners, mortgage holders and those with grandfathered tax benefits (like CGT,NG,FC).
With power prices, health insurance, car & home insurance, rates & food prices rising every year, you seriously think $20 a week or thereabouts tax cut is going to make a difference when wages are barely rising??
Having this kind of mindset is why so many people are broke or barely surviving. Need to go out and make your own money…not have an entitled mentality…especially in a country like Australia where there is so much opportunity. No one owes you anything. If you want more income, earn it or create value for people and it'll come to you. Quite simple.
@SelfMade: So wanting non-exorbitant electricity/gas, rent, and transport is caused by an entitled mentality eh? And can be fixed by going out and earning more money? What happens when everyone 'goes out and earns more money'?
@[Deactivated]: You really think most people would? Most are inclined to get smashed on the weekend and recover by watching netflix than to work harder for a better life.
So wanting non-exorbitant electricity/gas, rent, and transport is caused by an entitled mentality eh?
Wanting? No. Thinking you're entitled to it? Yeah.
You want something from other people, you pay what they ask or you do without. That's always been a fact of life and it's not likely to change.
@SelfMade: Not sure what your rambling on about. Where did I say anyone owes me anything?
I'm saying consumers are saving or just getting by but government wants us spending which is why the tax cuts.
Thankfully there are people in this country that aren't greedy like you and will jobs that pay crap, such as childcare, disability services, youth workers etc.
@chumlee: Not sure why PK88 is being negged above other than mentioning the word "Liberal" as if people are being triggered mentioning the 'L' word.
The recession is indeed already here. The economic growth we currently have is simply due to migration but quality of life has gone backwards and I do agree with that.
If we have tax cuts now, it will be gobbled up by as Chumlee said, cost of living stuff such as energy, health insurance, etc.
And State Govt / LGAs wants that money too and thus they jacked up council rates (through revaluation), rego, land tax, etc and add little bops along the way like surcharges on council rates, regos, etc when they actually encouraged you to pay by credit card.
Let's see if things would improve now the election is over.
Last time I read your comment on retail was that it's been killed by ever higher rents and wages….
This time you are saying everything is going up, and wages are barely rising.
I'm confused when you speak, I sense you are keen to put out the populist lines. Correct me if I'm wrong though.
@cloudy: I believe I said rents and wages are bigger issues than a 4% afterpay fee.
You do realise there is employment outside of retail and wage rises are needed to maintain economic performance?
If you are confused perhaps you need to read economics for dummies
@chumlee: @PK88 I don't know why you got negged mate, you made some valid points. As you said any shopfront business is going to struggle and I agree - whether its selling phones, watches, clothing through to serving bacon and eggs toast. I went to Sydney CBD on Saturday and it was pretty quiet imo. Tough for those guys. Personally I doubt the Liberal tax cuts or interest rate cuts are going to be good enough in the short term (up to 3 years) to stimulate the economy. The collapse of the housing market has caused everyone to be cautious and its going to stay that way for a bit.
I don't care what is happening to the world or Australia, I am just going to continue living and enjoying my life. We have only one shot at life, so best to make the most of it.
wage rises
It's not wage rises, it's productivity increases. If you pay people more for the same amount of product/services, that's just inflation. You're not actually contributing to the economy.
@HighAndDry: So explain why politicians get a pay rise every year above inflation? How is their productivity measured?
@chumlee: Because they can and we don't vote them out for doing it.
Aka: because people don't care enough about it.
Also - productivity? for pollies? hahahaha
@chumlee: Inflation is a factor, but you mentioned wage rises in the context of maintaining economic performance. That's not related. Because even if you can set wages, you can't enforce people being given a job. If there's only so much productivity in the economy - if you have 100 people @ $50 ea now, if you double the wage rate you won't get 100 people @ $100 ea, you'll just get 50 people @ $100 ea.
Just look at the widespread underpayment in the hospitality industry - that's the market correcting itself because the minimum wage is just too high above the actual natural rate of pay.
I think a lot of people, not you necessarily, think that you can somehow legislate economic performance (and by extension, wages). You can't - if you can, every government would set 5% economic growth year-on-year. And this applies to wages growth, because if the underlying economic growth isn't there, there won't be money to pay wages, whatever you set them at.
@HighAndDry: Employers that underpay in hospitality are not only ripping off workers but distorting a market where honest employers pay what's owed. Why should these businesses suffer for doing the right thing?
Too many cafes and restaurants exist and those who can't afford to survive by paying employers their legal entitlements should go broke
health insurance?? LOL its free bra! ozbargain's dont pay health insurance
this is not the shitUSA
@vid_ghost: If you're earning over the $90,000 p.a. health insurance can be worth it to avoid MLS (i.e. with my income I pay $2000 medicare + $2000 levy surcharge = $4000… Privately insured, I may pay $2000 medicare + $1800 on insurance = $3800, double sucks because I'm <30; so 'loading' does not apply anyway). Though the entire 'private health insurance' is the least value 'insurance' one could ever have (anything bad happens, most people end up in public anyway - luckily we do have good public healthcare)… If I could set my excess to $1m+ I would - because I'll never actually use it, but saves me money for tax purposes… Furthermore; everyone knows everyone on OzB is >$90,000.
The liberals are literally betting on housing prices increasing. If they don't, the government is going to default.
Based on what logic?
Citation needed
You're mixing your words.
The Government defaulting on debts (aka Greece, Spain etc) is never going to happen in Australia.
The economy going into recession IS going to happen, and that's what I think you are referring to.
The Liberal Government future budget forecasts are unbelievable… and most certainly are "betting" on house prices increasing.
I think that's what 'smalltime0' was referring to. The Government's future looks overly rosey and upbeat, and doesn't factor in trend lines over the last 20-30 years.
We've been lucky over the last few global slowdowns/corrections. Labor spending kept us out of recession. Liberal's got in on talk of fear mongering and 'paying off Labor debt over generations'. Now they are trying to flip that talk into upbeat outlooks, and its failing.
We are headed for a recession FOR SURE. We are well overdue.
And I'm glad the Liberal's are in power to take full responsibility for it :).
Explain?
@R4: If the government budget projections don't produce the wished for growth, they won't collect enough money to pay their bills including the government debt.
If they then do not cut services/spending and/or raise taxes, they would default on their debts because there would be no money to pay them.
Since they have promised to keep services, and not to increase taxes, the plan if the rosy growth doesn't occur must be default…
This won't happen, of course, because the gov can cut services and raise taxes or print money. But it is an example of how politicians tell the public what they want to hear, not the truth.
@mskeggs: Sure, but it would take a real stretch of the imagination to envisage an actual default by Australia.
Our government has a spending, not a revenue problem. They are raising more than enough taxes (the ATO is incredibly good at this - try dealing with the UK's HMRC - they're amateurs in comparison). They waste so much of our money. They employ far too many people. They use our taxes to buy votes in certain sectors of the electorate - aka Fiscal Drag). They could cut plenty of spending without affecting services while paying down debt. Unfortunately we continually elect governments unprepared to make tough decisions because they operate within a pathetic 3 year election cycle, and we have large sections of the electorate living in denial. This is not a problem particular to Australia BTW - you see this all over the Western World.
Unfortunately we continually elect governments unprepared to make tough decisions
It's only unfortunate if you disregard that it's… deliberate. People vote in governments that promise them free money. Tax-breaks are fine - that's the government taking less money. But grants, baby bonuses, etc, none of that is necessary or justified.
The government should focus on its responsibilities, which is to grow the economy. Individuals should pick up their own slack of financially supporting themselves.
@HighAndDry: Agree. Cut all of that nonsense and taxes could be cut for everyone while still providing core services like Medicare and welfare for te genuinely needy.
You make it sound like the Liberals actually have a plan.
Agreed that Cash is not for wealth accumulation, but great when the alternatives are just overpriced assets and speculative vehicles.
Interest rates being low and all these tax cuts is really not a good thing, it just means we are even more (profanity) when the recession does come.
Mining and resource companies and the businesses that service them are doing well and are on the verge of doing very well.
This industry, which is a major factor in our economic performance, has a few good years in front of it
I saw hope you're right. I'm a mining engineer and it already feels volatile.
I don't know where you are but I can only speak for WA. I work in miming project electrical engineering design for one of the major EPCMs. I see all the projects currently being designed and planned - and there's a lot. Iron ore, Lithium, Uranium, Mineral Sands. Gold is going gangbusters. Most of this will take a few more years to filter through to construction (where the big money gets spent), but it's coming. Even you have to see how much better the industry is today compared to a few years ago.
People aren't spending and tightening their belts, businesses aren't doing well
…
Anyone buying full price is silly.
… and young people have no respect any more…
… and food doesn't taste as good as it used to…
… and things were always better in the good old days (unless of course, we died at a young age of diphtheria, or tetanus, or scarlet fever, or childbirth, or war, or plague…)
It's likely Socrates said the same things, 2400 years ago.
To quote Jeremy Clarkson - 'the 50s were great - apart from the untreatable lung infections'!
I was out of school, hadn't had a job for a few years. Unemployment was high but even higher for young people. There were various government programs that helped people out.
Free training courses to get you training & work experience. The one that I went to was ran by an experienced person in the industry, a lot of people got hired by the place that they were doing work experience at. There was no work for the dole scheme, I think I had to look for a job twice a week to get the dole, that's all.
There was a program where the gov paid a part of your salary. The benefit was that the employer got to pay less for a worker, the gov paid less to you than the dole. And you get a job, so everyone wins.
Centrelink didn't exist back then, it was called something else.
I do remember a property bubble that popped at around that time, and people were disappointed that they hadn't sold their homes because they thought that it wouldn't happen again.
I didn't have any savings back then to notice what the interest rate was. But I do remember kids getting a better interest rate than adults and some one got me to start a savings account to put some of their money in it and later I withdrew it and gave it back to them.
so… really, not all that bad?
For a lot of people, the main experience was Paul Keating talking the economy down, talking about the banana republic and the recession we had to have. Low wage growth now might be worse than a technical recession.
I had no job for years, no savings, there was no ozbargain to get discounts & freebies.
But a lot of things were different. No mobiles, internet, only one phone company. People thought Japan would eventually be the no.1 economy in the world, now they rarely get mentioned.
Maybe I only remember the good stuff, remembering the bad stuff would just stress me out.
Your recounting is probably the first proper response and insight into the recession in this whole thread!
Yeah it would be interesting to see what would happen to all the new build apartment owners if interest rates hit 17% again. Time to sell the investment car.