Super Continues To Fail Us

ABS data confirms this (6523.0). It shows that 1.2 million people in super "joined" an income stream from their super in 2013/14 at an average of how much per week?  $502!  Super is keeping this curse on the workers.  Separately, there were people who withdrew a lump sum in the year from their super.  Guess how much they withdrew to enjoy their lifestyle?  Half of the amounts were less than $25,000!  Again, this is $500 per week.  Again super fails workers.  Who are the winners?

RBA

I have a list of the RBA's failed predictions that rolls out over two metres long!  I then gave up adding to the list because no one in the media was listening.  Now it appears that the media are starting to realise indeed that "the emperor has no clothes!"  (my apologies to the younger generation who don't know what this term means.  Google it!)  Check out this article where another economist has adopted our opinion of the Reserve Bank: "too little too late".  Enjoy the read.

Unlike the media, I don't want to be negative.  I look for the positives.  What are they? Now, after 15 years, the media circus is starting to put pressure of the Reserve Bank to keep in step with the rest of the world's low rates. The positives are the consumers will have more money to spend after they pay their mortgage.  That is, if our Treasurer gets as cunning as Howard's treasurer, and puts pressure on the banks to give 100% of the RBA downward movements back to borrowers. This will allow consumers to have more money that they can spend, creating more jobs. Great news for the 730,000 people who don't have a job.  Our Treasurer disagreed with me when I said our banking system is a monopoly.  I think he may be changing his opinion now.

The RBA and the government will have to get their heads together to reduce unemployment from 5.8% as happened in the rest of the world affected by the financial crisis (we were not affected, of course! - that was a Rudd lie!!).   They were able to halve the unemployment rate while our Reserve Bank saw it rise 50%.   So copying overseas job creation should be simple.  I foresee a rise in our main export, iron ore, which will tend to push the Australian dollar up.  This must be counter-balanced by aggressive cutting of rates by our new incoming RBA governor.  What will be the benefit of this?  We would have lower rates for longer.  We will have immediate pressure, like the Howard government applied, for the banks to pass on, in full, these reductions. More money for you!

Low rates => low rates on deposits - poor pensioners!!

So writes the media trying to stop the downward spiral of interest rates.  The reverse is true of all deposit-holders and pensioners.  They would much rather low inflation than high inflation.  Low inflation means they need less income to buy goods and services.  This lower income means they have less tax taken out to buy these goods and services.  High inflation and high rates hurt these same two sectors.  They would suffer from having to pay higher prices for goods and services, but are in higher tax brackets making funding their lifestyle that much harder.  A double whammy!

Let the good times roll.

With property investing you reap the benefit of both - a high rent return that is getting higher, thanks to APRA’s policy of restraining supply. You've heard my banana story!  So you are getting rising rents, thanks to APRA, and rising capital values as well from this falling supply.  Note the media think there is good supply coming into the market but they are unaware that the supply is of rotten bananas that people don't want.

Why is property investment a solution - by our new white knight, the Reserve Bank?

As Costello told the banks to pass on rate cuts in full during the Howard term, so instructions can be given to the non-majors.  RBA instructs the non-majors to do interest-only loans to investors.  This reduces interest payments by 40%.  This reduction is cash in the pocket of consumers.  Instruct them to lend to investors for off-the-plan properties in areas of short supply.  This is a repeat of the instructions the RBA gave a couple of years back when they suddenly realised the mining boom was a mirage and that jobs had to be created elsewhere.  This instruction came with a caveat that it was not to be in areas considered to be over-supplied, such as city centres.

This was before the sudden back-flip to attack all new construction!

Consideration should be given, as well, to reducing the cost to borrowers of business lending, which has been the province of the four majors for too long.  The result is that there have been much higher interest charges than overseas businesses pay.  Of course, these higher costs are passed on, as is our world-unique tax on labour of 9.5%, the super contribution.  This labour tax is imposed on all goods and services produced in Australia.  This labour tax is there for the benefit of the finance industry and the large union bosses who have their noses in the trough.  It is not there for the benefit of future retirees who we know will run out of money from their Super after just five years in retirement.  The solution is to divert the 9.5% labour tax to paying off home mortgages or investment loans. This in turn will reduce the need for banks to borrow funds from overseas, lessening our vulnerability to future global crises. Faced with being deprived of being stuffed with cash each day, Super industries would be forced to become super-efficient and not the worst in the world at imposing administrative costs (to quote Joe Hockey's banking inquiry chairman).

Cashed up consumers and employers.

So now we have an era of confidence across the community with the ability to spend. Spending creates jobs and taxes.  It reduces unemployment and its drain on taxes.

I Love Property

Kevin Young Property Club Founder