Times are tough all over

[ZenGum]

Here's how many Yen it costs to buy one Australian Dollar, over the last 12 months:



Just to help you see that cliff at the right hand end, here is the last 30 days:



I doubt this affects any of you very much, but it is pretty damn spectacular. There is some serious stuff going on out there.

[tw]

Originally Posted by ZenGum

Here's how many Yen it costs to buy one Australian Dollar, over the last 12 months

What has been ongoing in the Australian economy to cause such a dollar drop? Have commodity exports dropped off sharply? Was the government running massive deficits? What was ongoing four and more years ago to cause that dollar drop?

[Elspode]

America's economy drives everyone else's. We are the largest consumer of *everything* there is, and when we cut back our consumption, everyone else takes the hit, too.

[HungLikeJesus]

Originally Posted by Elspode

America's economy drives everyone else's. We are the largest consumer of *everything* there is, and when we cut back our consumption, everyone else takes the hit, too.

Except whale meat.

[Pie]

Originally Posted by Elspode

When we cut back our consumption, everyone else takes the hit, too.

Dude, it's time we stopped bogarting the bong!

[tw]

Originally Posted by Elspode

America's economy drives everyone else's.

That's not the reason for problems in Iceland. Apparently Iceland's three biggest banks invested heavily in American mortgaged backed securities - helping to fuel an America that was spending massively (like all Republican administrations do) and using the incoming investments to deny how large the deficit had ballooned.

In another post, described was how China (in trying to be a close American friend) was inadvertently making Americans ignore the costs of “Mission Accomplished”. China’s massive investments also contributed to the ponzi scheme of tax cuts and spending increases.

Eventually economics takes revenge – including revenge on those who invested in America NINJA style.

But again, why has the Australian dollar dropped so far and so fast (Brianna xxxxx Aliantha answered after this was asked)?

[Elspode]

Originally Posted by tw

That's not the reason for problems in Iceland. Apparently Iceland's three biggest banks invested heavily in American mortgaged backed securities - helping to fuel an America that was spending massively (like all Republican administrations do) and using the incoming investments to deny how large the deficit had ballooned.

In another post, described was how China (in trying to be a close American friend) was inadvertently making Americans ignore the costs of “Mission Accomplished”. China’s massive investments also contributed to the ponzi scheme of tax cuts and spending increases.

Eventually economics takes revenge – including revenge on those who invested in America NINJA style.

But again, why has the Australian dollar dropped so far and so fast (Brianna xxxxx Aliantha answered after this was asked)?

I see. So Icelandic banks invested heavily in our mortgage banking, but that isn't America's economy driving theirs in any way?

I gotta learn more about economics.

[tw]

Originally Posted by Elspode

I see. So Icelandic banks invested heavily in our mortgage banking, but that isn't America's economy driving theirs in any way?

I never said that. Iceland is apparently in trouble due to entanglements with the American economy. And so the question. Does Australia have the same entanglements?

I have no idea why you concluded otherwise.

[Aliantha]

Originally Posted by tw

What has been ongoing in the Australian economy to cause such a dollar drop? Have commodity exports dropped off sharply? Was the government running massive deficits? What was ongoing four and more years ago to cause that dollar drop?

Similar things that were happening in the US economy. Citizens had enjoyed lower interest rates for a considerable period of time. The gov was running a surplus and giving out money all over the place. Our dollar was up around 98 cents US for almost 12 months shortly prior to this recent meltdown.

Basically everyone was spending money like it was going out of style (which ironically it has) which injected more and more money into the economy so of course it kept growing. Housing prices inflated as more and more people decided to get into the market, so the construction industry boomed about 10 yrs ago. Then all of a sudden, someone realized that inflation was getting out of control (this was about 3 yrs ago), so the reserve bank started putting up interest rates. They went up really only about 4% in the end over that period...maybe 5%, but it took the average mortgage rate up to nearly 9%. More in some cases. This of course put a huge amount of financial pressure on mortgagees who had in many cases taken out 100% loans in the last few years. So, people started trying to sell their big expensive houses.

At the begining of this year during the months of January and early February, people were selling within 2 days of putting their house on the market, and often getting more than the list price, but that was the last gasp as our economy reached the top of the hill. After that, there were too many houses on the market, and not enough buyers. People who had been thinking about buying started getting picky. They didn't want to pay the inflated prices created by our inflated economy so they started making crazy low offers, and mortgage holders in trouble had no recourse but to accept those offers.

Lower the median house price and your economy starts to slow.

Basically, the interest rate rises brought down inflation to a managable level, but they hurt the citizens who had high mortgages.

Anyone with half a brain to watch what was happening should have seen this coming. Some didn't though, so our dollar continues to fall as people continue to keep their wallets closed in order to try and hang onto what they have now.

Increased fuel costs during this period have also contributed. Not only to household budgets at the fuel pump, but the cost of groceries and most other utilities has risen considerably also.

That's a very simple explanation. Obviously government policy contributed to the problem also along with world markets and a healthy trading market for Australia.

[tw]

Originally Posted by Aliantha

Then all of a sudden, someone realized that inflation was getting out of control (this was about 3 yrs ago), so the reserve bank started putting up interest rates. They went up really only about 4% in the end over that period...maybe 5%, but it took the average mortgage rate up to nearly 9%. ... This of course put a huge amount of financial pressure on mortgagees who had in many cases taken out 100% loans in the last few years.

Increased central bank interest rates should have no affect on a mortgage even if the mortgage is 100%. However, with bean counter mentality, something new was created - rate adjustable mortgages. Nobody with basic financial knowledge would take out an ARM.

For your reasoning to be valid, ARMs must have been widespread in Australia. Otherwise higher central bank interest rates would have left mortgage payments low. One reason to own a house: inflation and the necessary higher central bank interest rates make life easier for the holder of a fixed mortgage. His mortgage payments remain unchanged and the house value increases. Just another reason why no informed home owner should even take out an ARM.