Citizens Electoral Council of Australia
Home

Printer-friendly version

Citizens Electoral Council of Australia

Media Release Thursday, 17 November 2016

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://cec.cecaust.com.au
 

Global bond turmoil could be pin that pops Australia’s property bubble

What an irony: the election of a real estate mogul as President of the USA could be the pin that pops the real estate bubble in Australia!

Donald Trump’s election has triggered a sell-off in global bond markets, the financial markets that are much bigger and much more important than stock markets.

The sell-off is not because Trump is dangerous, but because the global financial system is so sick. Outside of China’s investment program there has been no recovery since 2008, only central bank life support in the form of created money called quantitative easing, which has driven interest rates down to zero and negative.

The bond markets are reacting to Trump’s plans to actually do something, namely invest US$1 trillion over 10 years into infrastructure. Trump promised that America “will build the next generation of roads, bridges, railways, tunnels, seaports and airports that our country deserves. American cars will travel the roads, American planes will connect our cities, and American ships will patrol the seas. American steel will send new skyscrapers soaring. We will put new American metal into the spine of this nation.”

It isn’t clear if Trump will be able to do this, given the ideological opposition he will encounter in Washington, and also his ill-advised proposal to use public-private partnerships. However, the mere thought that it could be possible has sparked fears that the US government borrowing a trillion dollars will push up interest rates.

It is this fear of rising rates that is crashing the bond market, which was already poised to collapse: Wolf Street reported on 2 November the warning of successful hedge fund manager Ray Dalio that “it would only take a 100 basis point rise in [US] Treasury bond yields to trigger the worst price decline in bonds since the 1981 bond market crash”. According to London’s 13 November Telegraph the sell-off has already wiped US$1.14 trillion off Bank of America’s Global Broad Market Index.

Calming the bond markets will not be simple, as the panic is among speculators who have placed massive gambling bets on the market that will go bad as rates rise. The sell-off is occurring because they are trying to get out of their positions.

What does it mean for Australia?

Very likely it means higher home loan interest rates.

Australia’s big banks rely on overseas borrowing for 20-30 per cent of their funding. That overseas borrowing is already more expensive than the interest they pay on deposits—now the banks will have to pay more. This will push up Australian deposit rates and home loan rates.

Australia’s housing market is so inflated that it is unaffordable even with record low interest rates. A rise in home loan rates will be too much for many families. It could force a sell-off that pops the bubble.

This spells disaster for the property market, but even more so for the banks, which have bet everything on housing.

There is also good news. The best way to protect ourselves and our economy from the fallout of the collapse of the property bubble is through a Glass-Steagall separation of the banks, which splits off investment banking and other risky activities into separate institutions, leaving the banks only able to engage in normal commercial banking—taking deposits and making loans. In a banking crash Glass-Steagall will enable the government to keep commercial banks functioning for the benefit of the public, while the speculative bubbles burst. Wall Street and the City of London have blocked all efforts to reinstate Glass-Steagall since the 2008 crash, so that banks could continue to gamble. The good news is that, unlike Barack Obama, Donald Trump is a supporter of Glass-Steagall. It now has a chance to be re-enacted, which means we have a chance to enact it in Australia too.

Don’t hang around waiting for your mortgage and your bank to go under water—join the CEC to fight for Glass-Steagall!

Click here for a free copy of the CEC’s pamphlet Glass-Steagall Now!, which explains the dangers lurking in Australia’s banking system that only a full Glass-Steagall separation can fix.

Click here to join the CEC as a member.

Click here to refer others to receive regular email updates from the Citizens Electoral Council of Australia.

Follow the CEC on Facebook Follow @cecaustralia on Twitter Follow the CEC on Google+




Citizens Electoral Council © 2008
Best viewed at 1024x768.
Please provide technical feedback to webadmin@cecaust.com.au
All electoral content is authorised by National Secretary, Craig Isherwood, 595 Sydney Rd, Coburg VIC 3058.