You Call That Debt? Eee, By Gum, You Were Lucky
The Age
Saturday February 3, 2007
In the old days, banks lent money then wanted it back smartly.
WHEN I were lad tut boss said to me (in your best Monty Python accent): "When I first bought a house I had to sleep on bare planks. I paid tut mortgage and then I bought a bed. My advice to you son is get on't property ladder as soon as you can. If you already have a bed then so much the better".Well It wasn't quite that bad for me. But it weren't like it is now. I remember when you had to put a suit and tie on to visit the bank. They wouldn't lend you a thing without meeting you. And when you did have a mortgage you got send a statement of debt every month which said "YOU OWE US" and don't even think about not paying us back. I remember my brother-in-law (another one) coming to me a couple of years ago asking how to cut off his internet banking. Odd request. But it turned out that he couldn't despite his best efforts. His problem was that his new wife (my wife's sister) had just sussed the internet banking password and had looked at the state of their finances. After a couple of minutes she had looked up and shouted across the hall: "Hey, we're loaded. Let's book a holiday to Mexico". He wandered over.Turns out she was looking at the mortgage account. There was a big number, their mortgage debt, and next to that, pounding to be spent, was an amount of money they were allowed to redraw. A Mexican holiday, a new car, a boat. Just a few key strokes away. When I were lad the bank statements had a big red number on the bottom. It pounded with the message: "This is our money and we want it back." Nowadays the redraw number is in green, a credit. It is a wonder any young couple ever gets out of debt these days. And they don't. The banks are falling over themselves to get them to borrow it back. The concept of being paid back is alien to the banks and it has rubbed off on their young borrowers.The world is gorging itself on debt. A US economist gave a speech last week. It is a bit of an old drum but it could make you some money. He was trying to make a serious point. In the next few years 25 per cent of the US population is going to retire. Seventy-eight million of them. The cost of looking after these people is going to drain the US Government of cash and in the economist's words: "If early and meaningful action is not taken (on social security and health care), the US economy could be seriously weakened, a vicious cycle may develop in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits (that would) spark a fiscal crisis, which could be addressed only by very sharp spending cuts or tax increases or both." Without policy changes the impact will take federal debt to unprecedented levels. On policy changes he said: "I think the right time to start is about 10 years ago."Just some boring old economist making a point. Name, Ben Bernanke. Chairman of the US Federal Reserve and the successor to Alan Greenspan, giving a testimony to the US Senate Budget Committee. New management clearing the decks. The point? The US dollar is going down. Bernanke quoted the US Comptroller General. "When, not if - when foreign investors decide as a matter of mere prudence and diversification that they're not going to expose themselves as much to US debt, then interest rates will rise, and that will start a compounding effect." Bernanke noted the 30 per cent fall against the euro since 2002, a trend that is unlikely to change.Bang up a chart. Gold price versus the US dollar. Those gold stocks look good. So does Newcrest. Just fell over. New management clearing the decks. Marcus Padley is a stockbroker and author of the daily sharemarket newsletter Marcus Today. For a free five-day trial of the newsletter, go to www.marcustoday.com.au
© 2007 The Age
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