What’s going to happen when the shite hits the fan?

 

Joining The Dots:  inflation has been ‘missing in action’ for the best part of a decade, primarily because we’ve created a world where we can produce excess goods and services cheaply.  Our world in 2018 is one where supply most often exceeds demand.

Globalisation, block chain technology, automation, computerization, robotics, trade agreements such as the TPP – all these ‘advances’ have two things in common:

i.     less work (and less pay) for lower skilled people AND middle management, and
ii.    each one can facilitate lower priced goods and services that are to be exported and imported around the world.  Put them all on the table and you have a massive snow-ball effect

Tariffs are an ill-fated attempt to halt the ‘creative destruction’ – job losses and wage suppression – caused by the global distribution of low cost goods.  BUT not all items in the Consumer Price Index (CPI) basket have been subjected to global competitive pressures – child care costs, health cover, energy prices & education expenses – have increased at rates well above the official inflation number.

With household incomes bumping against the wage ceiling that’s already been created by globalisation and artificial intelligence – for many households, spending has already been prioritised according to essential and nonessential.

Retail spending falls into the nonessential column – hence almost weekly announcements of store closures.  The downfall of Toys“R”Us is a classic example of this!  The problem is that items in the essential column – loan repayments/rent/energy costs/childcare – are increasing at such a rate, they’re rapidly reducing the amount of disposable income available to households.  So, how do you keep the wolves from the door?

This extract The Daily Telegraph, 14 January 2018 about credit cards tells me as a nation we could be headed for BIG trouble:

‘Desperate Aussies Battle Cost Of Living With Plastic’.  ‘Desperate Australians have resorted to paying their rent & other bills with credit cards as they battle rising living costs.  Consumers have entered 2018 with a massive $31.6 billion credit card debt – every single dollar accruing interest @ around 19% per annum.’

Do the math people – if you’re one of those people you’re paying those bastards a share of more than SIX BILLION DOLLARS a year in interest … just so you can get by.  Get some help to restructure your outgoings & debt before it’s too late.  Let me know if you need someone & I’ll see what I can do.

You know what I feel right now?  Something simply doesn’t add up?  We’ve currently got the lowest interest rates on record and – according to the government – we’re supposedly enjoying good times!  Yeah right?  Many, many businesses are not telling me anything like ‘it’s all good out here’ – in fact it’s the opposite.

But, hey – this scenario isn’t unique to Australia!

We see in the media daily that Europe seems to have more than their fair share of economic & social malaise, the Africa’s appear no better off than they were 20-30-40 years ago the UK wants out of the Eurozone (and anything to do with their problems).  And that ‘miracle economy’ called China, could in fact become the ‘mirage’ that I called it seven years ago.

To top that off, I read last year that the average household income in the US is currently $4000 LESS than it was in 1999.

It comes as no surprise then that total consumer credit over there – personal loans, car loans, student debt, credit cards and the like – has increased 52% in the last seven and a bit years – from usd$2.5 trillion in 2010 to over usd$3.8 trillion.

If these are the so-called ‘good times’ …. I think we should join the dots.  What’s going to happen when the shite hits the fan?

  • Credit assessment criteria will get even tougher than it is now; much more difficult
  • Interest rates on home & business loans will sky-rocket when the banks start dis-trusting each other (again)
  • Asset values – most asset classes – will be hit by a major correction. Unfortunately, very little will be left untouched – however the bigger the current price, the bigger the potential fall
  • Many speculative plays could collapse completely

The best thing you can do right now?

Get your debt down anyway you can (100% eliminated is better) ASAP people.

 

Kevin Lee
Head Adviser
Smart Property Adviser

2018-03-30T09:15:44+00:00