What caused the Cost-of-Living crisis?

[old man emu]

Do you think that the Cost-of-Living crisis is something that just suddenly arose from nowhere? That sort of thinking is simply a reliance on short term memory. I watched the following video and it made me think that the current economic situation actually began to develop about fifty years ago. Once again it was the USA which caused the problem.

 

 

[facthunter]

The Idea is to replace Slavery with something better . Desperate Low Paid workers..  Nev

[nomadpete]

3 hours ago, facthunter said:

The Idea is to replace Slavery with something better . Desperate Low Paid workers..  Nev

That plan has worked great, (so far.)

[nomadpete]

PS

 

Real slaves don't have a 'cost of living crisis'. Nor do they worry about the rising cost of housing.

 

Now, tell me how things have improved for the masses.

[Jerry_Atrick]

Interesting vid, and in the financial services industry, abandoning the gold standard is still often discussed. However, it was more of a policy vehicle of restricting the printing of new money than an accounting system - the accounting system merely ensured that the policy was being adhered to. The video's explanation that government polcies contribute is the real reason.. Decisions made years ago and today on a raft of things - some domestic and some international - are the main contributor.

 

For example, the massive increase in the cost of housing relative to income started its trajectory when John Howard halved the capital gains tax on investment properties. Suddenly the value of housng as an investment shot up overnight and the wedge between the haves and have nots widened. Yes, negative gearing is a contributing factor, but if the tax had remained, then the impact of negative gearing would be much less. Immigration? Yeah, it has an impact, but on a marginl basis, much less than the halving on CGT. And what benefit did that bring to society? Not much - less money for the government and more money flowing into the hands of people who didn't normally need it. And, yes, reasonable levels of residential investment properties perform a valuable public service, but this stimulated a disproprtionate level of investment properties which has turned an essential commodity into an investment asset class.

 

An example over here is the nationalisation of monopoly utilities. Trains are the most expensive in Europe, yet the worst performing (at least amongst our peers - I don't include stiull developing European countries). Thames water, which was on the brink of babkruptcy due to corporate raiding, was allowed to riase its water bills by something like 20% to stave off bankruptcy rather than be re-nationalised. Why? Because at the moment, a Canadian pension fund and a Dubai investment fund have a significant stake in it, and someone managed to convince the regulator (and government, I would guess) to allow it to go bankrupt would not help Britain sell itself as a great place to invest. So, who picks up the tab and what does that do to the cost of living. It seems if you're big enough an investor, you can socialise the losses in a so-called free market.  All it will do is allow the corporate raiding to continue.

 

And you can point to literally thousands of examples globally of government policy that is designed to ultimately transfer and concentrate wealth.. And it all has to be paid for.

 

This guy is apparently a trading genius and retired from it when he was 26.. I knew his name, because apparently if he was at the end of a derivatives trade, the bank he was tading with would just provision for a loss on the trade (these are now largely centrally cleared and you don't know who is at the end of it until the contracts exchange hands). https://www.youtube.com/@garyseconomics/videos

 

His view is sort of simple enough... Tax the rich.. Make them pay their fair share, and when they are disproprtionately wealthy to the risk they have taken on, take that excess at very high rates., It has three advantages. First, more resources flow centrally to build things like infrastructure, health, education, and the like. Secondly, it is fairere..most, if not all of these rich people don't pay anywhere near the tax on income or asset transfers as the masses.. why should they get away with it? And thridly, especially with very high texes on disproprtionate wealth accumulation to the risk taken, it stops the uber wealthy from squeezing out the rest of the population.

 

The problem is in a global economy that has national laws, if any one single country tries it, the wealthy will move themselves and their operations to another tax-friendly country.

[Jerry_Atrick]

Here is one video, presented by someone else of Gary's thought process:

 

[nomadpete]

What makes you think thee is a 'cost of living crisis?'

 

I did some basic arithmetic.

 

Back in 1979 I took out a mortgage to buy our first house.

 

Mortgage: $24,900

Interest:  16%

Weekly repayment: $79

Take home wage: $140 after tax.

Morgtage was approx 53% of income.

 

From Bureau of Census &statistics-

 

A mortgage of $450,000

At interest 6%

Weekly repayment: $671 (from a online calculator)

Net average weekly income : $1464

Mortgage is 46% of take home wage.

 

How is that a crisis worse than our situation in early 1980's?

 

[old man emu]

1 hour ago, nomadpete said:

How is that a crisis worse than our situation in early 1980's?

Because we forgot, or were in nappies in he early 1980s.

[Jerry_Atrick]

I haven't checked the numbers, but a few things jump out at me that has to be addressed, as a straight look at averages tingles my spidey senses.

 

First, I would be looking at standard deviations an/or some normal distribution of the average weekly earnings versus a weighted average of house prices based on where people are looking to live vs, the standard deviation or normal distribution of new mortgages. For example, how close was the majority of the population in earning the average weekly earnings in the 70s compared to now. And, the same for the average mortgage as well, and prices, etc.

 

Then you have to look at it in terms of relative costs.. for example, what is the overall impact of other taxes, other cost of living?

 

Also, a point in time is not a great comparison, as we can always cherry pick points in time..

 

Finally, the comparison of average mortgages is for people who already own their own home, so have purchases. It is going to necessarily include those that have had their homes for a while and those that are just new on the ladder.. And, it probably includes buy to let mortgages as well.. but even if it doesn't, there is a skew in the average mortgage held because of those that have had theirs for years. The problem with the cost of living is for those buying a house now.

 

I have been looking around Melbourne, and with the exception of some real outer suburbs, the prices for an average 3br house in a new suburb I had never heard of before, Tarneit, are about 550K. A 10% deposit would leave the buyer with a 500K plus mortgage if they couldn't also pay the stamp duty (quite horrific in Victoria). My niece is a physiotherapist currently living in Adelaide, and was toying with the idea of moving back to Melbourne, and the outer western suburbs. When I was a young adult, physiotherapists were not looking at what was then outer western suburbs of Melbourne.

[nomadpete]

Our first home was a new spec build. Standard for the era, it was 3 bedroom, one bathroom, of about 80 sq mtrs. The price and features was the same as a number of older queenslanders that we viewed. 

 

At that time, the houses you are presently considering would be akin to the standard of what my executive employer bought at the time. Upmarket and therefore less affordable, then and now. 

My first (& second) home purchases would probably be beneath the dignity of most present first home buyers.

 

[red750]

I bought my four bedroom house in Vermont at the end of 1978 for $58,000, and used my long service leave money to pay it off when I left the bank in 1992. The median price in my neighbourhood at the moment is $1.2 million.

[old man emu]

I glanced at the window of a Gilgandra real estate agent today. There were several houses for sale priced in the $360,000 range. Cheap enough compared to Sydney, but a bit over the top for a small farming town 60 km from its nearest reginal city. 

[red750]

Eight houses in my area have been pulled down and rebuilf as two storey homes. It looks like all new built homes have to be two storey buildings. This is the most recent demolished house in our street.

 

[Jerry_Atrick]

That is a common thread in Melbourne, esp, the east and south east. Or they knock the house down and build units on it. In theory, supply should increase relative to demand, but it doesn't work that way.

 

[old man emu]

In Sydney there are a lot of vacant public houses which are deteriorating due to lack of maintenance. It is quite clear that this lack of maintenance is due to a lack of sufficient funding. 

 

There are also many areas where the houses in the early public housing estates were built on quarter acre blocks. The houses are small and look like a pimple on a bum. Each of these blocks could carry at least four town house types dwellings. The current tenants could possibly be placed in temporary accommodation while the new dwellings were constructed and then returned to the same community. However , the problem is not land and construction material. It is the taxpayer dollars to do it. And, I suppose the political will to seem like a government is favouring one part of the community over others.

[spacesailor]

Most NSW tenants are paying " market rate " rent , with lots of check ups, & threatening letters .

Pushing them into the private housing market .

No long term contracts for the working class , like the ACT .

spacesailor