Comments on: A bad move

By: rog

rog — Sun, 12 Oct 2008 00:48:32 +0000

Govt pensions are paid out of taxes placed on economic activity whilst super funds engage directly in the economy for revenue – both are inextricably linked to economic growth. Most super funds need to be viewed long term – if you go year to year returns can be lumpy.

I think Buffett said that growth over the 20th century was only 5.3% compounded and it was mathematically impossible to have higher rates and those who promise double digit figure were misleading to say the least.

By: MH

MH — Sun, 12 Oct 2008 00:04:08 +0000

re 56 – A pension has no capital value as it is funded out of consolidated revenue, year in year out and hence is a straight bottom line cost to the federal budget. The long term matured super account you refer to is a fairy story trotted out by the self interested self seeking fee grubbing charlatans that have passed for financial advisers in this country. The average accumulated figures in this country are dismal (less than $100,000) and especially dismal for women who have breaks out of the paid work force. Most pensioners are women and most pensioners are poor not grasping individuals having a second bite at the revenue pot after having exhausted their bountiful retirement savings with the aim of getting their hands on some free government cash.

By: observa

observa — Sat, 11 Oct 2008 23:57:44 +0000

Let’s not get into the medical and retirement storm clouds looming with demographics. It’s the immediate economy now stoopids! In that sense it’s facile to talk about numbers of deposit accounts with certain figures that Govts must guarantee. We all need to understand that you can only get a snapshot statistical picture of that out of the banks’ computers and they’ve changed in the time it takes to print and read the data.

Overall those deposits hinge on the continual flows of all those economic transactions continuing at reasonable historical levels. If unemployment and mortgage defaults, etc begin to seriously impact those flows (snapshots at any one time)the total deposit base is at risk with deleveraging. It’s simply the quick reverse of the long slow fractional reserve banking that got them there in the first place. That’s the problem for authorities world wide now. Essentially to guarantee all depositors is to largely provide an implicit guarantee to all ‘bad’ debt. Bad being the operative word here and it is a moving feast depending on the overall economic performance. Whilst most of the margin callers on the stock markets are probably long gone now, we’re biting deep into the negatively geared portfolios now, with the negatively geared RE investors getting very nervous right now. Their current and future payments are what’s guaranteeing the everchanging deposit base now, in the absence of any Govt bailout of last resort. That’s what the furrowed brows on finance and Treasury officials is all about now.

It’s like this. Imagine the servo that brings in $100k tanker of petrol every 2-3 days and faces a $20k guarantee on his deposits. Does he sell $20k worth on EFTPOS and online credit until he reaches the magical $20k and shuts the pumps off until he can pay for and deliver another $20k worth? He might be able to time the runs and pay the extra cost but what about his supplier?

By: gthorpe

gthorpe — Sat, 11 Oct 2008 22:58:01 +0000

Re 55: Self funded retirees –
Lets see, a full Age Pension for a 65 year old couple, fully captialized, has a realistic value of less than $400,000.
Superannuation receives assistance from lower tax rates. A long term matured $750,000 super account will have some $280,000 of its value attributable to preferential tax treatment.
So this “self funded” retiree has already received 80% of a full Age Pension. If they lose it, come back and get a proper Age Pension, so the cost to the government has been more than a full Age Pension.
I find the term self-funded a little inaccurate, more fully funded with a net (not a safety net, because Blind Freddy could always see it was going to be used as part of the main game).

By: MH

MH — Sat, 11 Oct 2008 21:12:42 +0000

There is a very sizeable proportion of the populace who have no savings other than their house and a meager superannuation fund, this group, the great majority are now effectively stuffed. So are all the self funded retirees, part super and part pension group plus your standard pensioner. A quick run around on the weekend with many and various revealed some very frightening retirement portfolio losses, destroyed superannuation investments and a pall of gloom amongst all. These are all older or just retired members of our community who are being busted out as we talk. No wonder the Federal Government is now holding off on a pension review at this rate it will be everyone qualifiying.

By: jquiggin

jquiggin — Sat, 11 Oct 2008 20:49:17 +0000

BBB, that’s exactly the advice I’ll be giving if this goes through. I’m still hoping for a change of mind on this.

By: TerjeP

TerjeP — Sat, 11 Oct 2008 19:50:43 +0000

The following charts suggest that US banks are now quite well stocked with cash.

http://blog.mises.org/archives/008680.asp

Does anybody have anything comparable for Australian banks?

By: Bingo Bango Boingo

Bingo Bango Boingo — Sat, 11 Oct 2008 15:50:23 +0000

“As regards the need to avoid panic, I think this horse has already bolted. Members of my family are already asking me what they should do and whether their money is safe.”

Same here, John. My advice has been keep all the cash in NAB/CBA/ANZ/WBC accounts, and if the appetite for risk is truly nil, then spread it equally amongst the four. Encouragingly the inertia is such that many of them simply could not be bothered re-structuring their affairs in such a way.

BBB

By: observa

observa — Sat, 11 Oct 2008 15:31:24 +0000

Silly me! Of course you can’t have everyone pulling their super funds for home equity at once(not with the current stock market) but those current super contributions and returns are problematic now. Allow future super contributions to go into home equity with special hardship withdrawal provisioning for those under mortgage stress and possible default. That would help to minimise mortgage losses for the banks and save taxpayer funds to boot.

By: observa

observa — Sat, 11 Oct 2008 15:10:52 +0000

“..85 per cent of Australian bank depositors have less than $20,000 and more than 95 per cent less than $50,000″
Yeah but it’s the other 5% the rest need and have to worry plenty about upping and leaving. Still there is the growing problem of where they’re going to up and leave to I suppose. A deposit in need is a friend indeed perhaps. You’d have to say with the dollar drop and levelling out, most of the flighty OS dough has likely flown already although that could be famous last words when you recall it was worth around 46cUS a few years ago.

Slap a 12 month moratorium on dividend payments on all the savings banks so they can book build. Then there’s the looming problem of RE defaults. Since price rises aren’t a forseeable problem for the next few years it might be an opportune time to allow mortgagees to access their super to increase housing equity. This would be quarantined of course upon any house sale and rolled back into super. This helps solve the RE debt overhang and also the lack of safe investment opportunities for super funds at present. The Govt has moved toward this direction with those first home buyer accounts that have to go into super if not used for house purchase.