Two Million Aussies in “Poverty”

I recently came across this article: LINK

It is simply a mainstream media recognition of what many, myself included, have seen in family, friends, acquaintances, and anecdotally: people are struggling under the weight of their financial obligations, particularly mortgage repayments, credit card interest payments, vehicle operational costs, and simply putting food on the table.

It’s a short article, so I’ll post it here, too:

Two million Australians are living in poverty, with the number of “working poor” growing rapidly, research has found.

A Salvation Army-commissioned Roy Morgan report of 669 people indicates the working poor are finding it harder to make ends meet, with the rising cost of living and a lack of affordable housing causing financial stress for low-income families.

About half of the country’s low-income households report cash-flow problems, and more than a quarter need to increase credit card debt or borrow money from friends and family to stay afloat.

The report also found about 70 per cent of poor children are living in jobless families.

The Salvation Army’s Major Brad Halse said the report findings showed poverty issues have become entrenched.

He said there was a need for more understanding and fewer misinformed stereotypes, with an estimated 80,000 Australians seeking financial help for the first time in 2009.

“We are seeing families where there is intergenerational poverty,” Major Halse said in a statement.

“The cycle just isn’t being broken.”

The Salvation Army is calling for a child poverty strategy to ensure children thrive and an assessment of the full extent of under-employed workers.

 

(Original Salvation Army Media Release)

 

I hope you noticed the text I bolded? Yes, as suggested strongly in my brief article (here) not too long ago, people are borrowing to meet not only short-term needs (such as food) but also to cover debt obligations…ouch…here’s a relevant excerpt from that linked article:

An acquaintance recently wrote about how many Australian households are still taking on more debt, despite a number of technical and anecdotal suggestions that many households are struggling to service debts; substantial cost of living pressure seems to be manifesting to the point of “maxxing out” on their ability to meet obligations (including bills)…perhaps this is also the case in other countries?

Instead of reducing debt, selling-up, moving on, cutting back where possible (what I would call “rational” behaviour) there is evidence desperate households are seeking other lines of credit (debt) to subsidise – or just meet – the currently characteristically indebted situation.

Now, aside from being economically “irrational” in my honest opinion, it is certainly a desperate and difficult situation. What of the human toll in the short term? In the long term? I really feel for people here…

However, getting into more debt to cover previous debt requirements is tragic on every level, and cannot end well. In all honesty, it is probably better in the longer term to “cut your losses” now, and minimise the fallout later.

The thing is, even though the Salvation Army study that inspired this new blog post suggested this is an issue for more “low-income” households, I have been speaking to people in middle-class, average-double-income families with an average mortgage (which is a killer these days!), and they are struggling, working long hours, feeling guilty about not spending enough time with their children, nurturing their marriages, and unable to absorb too much more interest repayments and/or too much more “inflation” in the cost of living (which, if you might have noticed in your own experience, just simply seems to be more than the ~3% per year official figure! Yes?)

That is, debt-stress is “bad” for the low-income families is, but is “nearly as bad” for middle-income families…there are so many that really cannot take much more…and let’s not even mention the poor pensioners………

…but the interest rate rises keep coming (but will stop soon, in my opinion)…and the inflation keeps coming, and will get a fair bit worse once the Australian dollar drops significantly versus the US dollar – and it will, in my honest opinion, probably not long in the future, even despite all the US Fed’s efforts to deliberately debase the relative value of its currency. (See here and here for examples of some information about what is really going on with the US Dollar versus the Australian dollar.)

To me, the Australian economy is making lots of groaning, creaking sounds, so to speak. Know what I mean? Those sounds that something like a table being danced on by two fat men makes just before it gives way? Yeah, those sorts, except we’re talking about the lives of people instead. Poor table / poor people 😦

To express it in economic terms, we’re hitting (or have hit already, methinks!) what some (but generally not the mainstream) are starting to call “Peak Debt”. Self-explanatory enough? If not, for example, consider these links for more information: here, here, here (mainstream!) and here.

And it does indeed seem that this “Peak Debt” scenario, which has worked itself out in a number of other countries, predominantly through the Property Market, is also slowly working its way through the Australian Housing Market, and property supply swells (see The ‘BurbWatch Project, for example) and property prices begin to drop.

“Great!”, we think…except that:

i) many of us are already shackled to EXISTING debts, and

ii) Flight of capital/money from housing and related financial instruments and institutions, means that they will try to “park” their money somewhere it won’t be deflating/depreciating with property…which often means things like oil, wheat, rice, iron ore, coal, copper, tin, gold, etc, etc…so the prices of these items go up, due to increased relative market demand…getting to the picture?

So, decreasing property prices are great and all, but people can still suffer as their relative purchasing power of their wage(s) (assuming they still have a job…) is getting eaten away by increases in the cost of living; ie. their $100 doesn’t allow for as much to be bought at the supermarket as it used to; or, similarly, the same basket of goods at the supermarket cost $110 instead of the normal $100. That’s Price Inflation.

And while we’re at it, here’s some more news articles on the “struggle” theme….I don’t mean to be all pessimistic, really, but hope that people can live according to how things are, not just how we are told they are, or told they should be…

Soaring Rents Fuel City’s Poverty Crisis:

MELBOURNE’S rental crisis has become so extreme that some low-income families have to sacrifice necessities to keep a roof over their heads.

Low-income households – including students, pensioners, single parents and families on the minimum wage – are spending more than 75 per cent of their income on rent, according to a new report from the Tenants Union of Victoria. About a quarter of Australian households rent.

It is generally considered that tenants spending more than 30 per cent of their income on rent are ”stressed”, but tenants union policy worker Toby Archer said the group’s first Private Rental Affordability Bulletin found many households were spending more than double that figure, even with government assistance.

”Making the rent often means they have to go without the basics elsewhere,” Mr Archer said. ”They economise by eating the cheapest food they possibly can, or … not heating the house. [They] do without things that most people would consider essential daily needs.”

Sydney: Most Expensive, Most Defaults:

Sydney has been awarded the dubious distinctions of being the city where mortgages account for the highest proportion of income in the world, and with the highest proportion of mortgage arrears in Australia.

Sydneysiders spend an average of three-quarters of their monthly income on property repayments, according to a survey by realestate.com.au, with the average house price at $626,444 and the average monthly repayment around $4,123. In contrast, the average repayment in London is less than two-thirds of monthly income, and less than half in New York.

A separate survey by Moody’s has also revealed that Sydney also has Australia’s highest level of mortgage delinquencies, with the Fairfield-Liverpool region recording a delinquency rate of 2.77%, and accounts for 4.24% of all arrears in Australia. Even so, Moody’s Arthur Karabatsos highlighted that, overall, Australia has a low level of arrears compared to similar economies.

Notice that bolded comment…something that, in my honest opinion, we hear far too much of from the mainstream economists and the submissive media.

The truth is that so many people are struggling, and so many sectors of the economy are struggling…but would economists and journos on $80,000-$100,000++ pay packets really appreciate this? Some might; most wouldn’t have a clue because it is either not readily apparent in the latest Australian Bureau of Statistics (ABS) media release (if they knew how to measure it), or it isn’t already in the mainstream press, who are talking about it, as per normal, in retrospect, whilst never really talking about how they missed seeing it coming (again…).

The writing is on the wall, and comments like those from Moody’s Arthur Karabatsos (above) do nothing to assist people in acting more “rationally”. Instead, we are being told how well off we all are, and how we should, really, keep spending, spending, spending…or what? Some politician or economist will get it wrong again? Get pie on their face? Lose their job? Maybe that would be a good thing (no offence intended).

And why should being compared to “other similar economies” (Karabatsos quote, above) necessarily be of comfort to us? Would you feel good if you were told not to worry because you were only as sick as someone else in the hospital, even though you were also told that they are actually quite ill, and recovery would be drawn out and difficult, and possible uncertain? Who on earth thinks that should be comforting?

It’s not; it’s stupid…or manipulative…so why should we feel comforted about being compared to “other similar economies”, most of whom have either stagnating economies on the brink of recession, are either solidly and deeply in a recession, or are on the verge of a depression? Get some perspective!

Thing are getting worse, not better, and some sort of “correction” cannot be avoided, and some sort of human toll, also, cannot be avoided.

It is better that we face up to this fact ASAP, get on our knees and pray for help, and help eachother through this as best we can, rather than just keep our heads in the sand, listening to the power-that-be tell us what our itching ears may want to hear…but which is ultimately not in our interest.

Until next time.

Cheers,
Stewart

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