Our Captains Have Lost Their Moorings

‘How much is enough?’

‘When will they ever be satisfied?’

‘It’s alright for them.’

These were the thoughts occupying my mind after reading an article in The Sydney Morning Herald last Friday (4 January 2018).

The article was titled Business warns of fallout from royal commission lending crunch’, and explained that:

‘…prominent business figures attending the KPMG Couta Boat Classic race, raised concerns on Thursday [3 January 2019]  about the impact of the “heightened risk alert” that was gripping the banking sector and causing a tightening of new lending to companies and would-be home buyers…’

Here they were, some of the ‘who’s who’ of Australian corporate life, warning about a ‘heightened risk alert’ being posed from a more prudent approach to lending.

The Australian Financial Review provided the background picture against which these comments were made…

It was a postcard perfect day at the Sorrento Yacht Club for the 20th Annual Couta Boat Classic in Victoria. A morning shower briefly threatened festivities for Australia’s captains of industry but swiftly disappeared like so many bottles of Bouchard Aine and Fils Rose at the race’s conclusion.

I’m so glad their picture postcard day wasn’t spoilt by the rain.

Why would these ‘captains of industry’ — who pocket annual salary and bonus cheques that amount to more than some ‘would-be home buyers’ could hope to earn in a lifetime — go to bat for the battler?

This extract from the SMH article provides the answer to that question (emphasis is mine):

Some of Australia’s top business leaders have sounded warnings over the “unintended” fallout from the banking royal commission, including a crunch on lending by nervous banks, which they believe poses the biggest threat to the economy in 2019.

The comments come after federal Treasurer Josh Frydenberg this week criticised the banks reluctance to lend to prospective home-buyers, warning it could jeopardise Australia’s economic growth prospects. He said their reluctance was negatively affecting confidence and contributing to the decline in property prices across the country.

Perhaps it was the marine setting that inspired the ‘risk alert’ comments from these ‘whales’ of the corporate world.

You see, these whales know the importance of plankton in the ecosystem.

If the little fella in the street (the plankton) stops borrowing, then eventually it filters up through the economic food chain…threatening the existence of the whale.

These high-flying guys and gals, who spent the day on multi-million dollar yachts sipping expensive wine, don’t (or at least shouldn’t have) any personal debt problems. But they want working Aussies to continue going deeper into debt.

Why? The economy is addicted to debt. Without it we are faced with the biggest threat to the economy in 2019.

Even our Treasurer criticised the bank’s reluctance to lend…seriously?

What did he expect the banks to do after the grilling they received at the Royal Commission? Give Commissioner Hayne the one-finger salute?

With the passing of each decade since the 1980s, there’s been a drop in lending standards.

The bankers of yesteryear would turn in their graves if they saw how easy it is to obtain credit today.

No deposit…no worries. Don’t worry about actual expenses…we’ll guess those for you.

How many credit cards would you like? Do you need a higher limit?

All the Banking Royal Commission is going to do is restore some meaningful assessment back to the lending process.

Heaven help us if we applied the banking standards of the 1950s, 60s or 70s.

You know that time, back when people had to demonstrate a savings capacity before being eligible to even make an appointment with the bank manager…let alone actually get approval. 

As of this morning, this is the estimated amount of debt we have in Australia…over $7 trillion and counting.

Free Guide: Australia’s ‘Unstoppable’ Economy. Download now.

MoneyMorning 07-11-18

Source: Australian Debt Clock

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If we go back to 1990, our country’s total debt (the light blue line) was around $800 billion.

MoneyMorning 07-11-18

Source: Australian Debt Clock

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In less than three decades, Australia’s debt load has increased almost nine-fold.

Adding $6.2 trillion of newly minted debt into the economy has no doubt boosted corporate profits…which in turn has provided the six, seven and even eight figure bonuses to our captains of industry…on an annual basis.

Little wonder the ‘whales’ don’t want a return to the lending standards of yesterday.

They know the system needs more and more doses of debt to keep them in the lifestyles they’ve become accustomed to.

But for those who don’t get invited to the Sorrento Yacht Club to participate in the annual regatta, life is getting tougher.

Stagnating wages (the white and blue lines) means they’re having to dip into savings (the orange line) to make ends meet…some of the expense they need to meet will be loan repayment costs.

MoneyMorning 07-11-18

Source: ABC News

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How much is enough for these captains of industry?

Is it all about growth, growth and more growth, irrespective of the long-term consequences, so they can achieve their business KPIs?

How much more debt can we service with stagnating wages, reduced savings and a world leaning towards higher interest rates?

History is replete with the fate that awaits a society encumbered with too much debt.

We must surely be close to that tipping point.

The real ‘heightened risk alert’ is in just how far these captains have drifted away from conservative financial management.

They — together with the Treasurer, RBA and the financial sector — have all been become brainwashed into believing this debt-funded growth model can continue indefinitely.

The fact that it’s not mathematically possible for this to happen, seems to be completely irrelevant…or best not to talk about for fear of spooking the masses.

When those charged with exercising restraint and prudence fail to do so, then the good ship of Australia is destined to sink under the weight of debt.

But our captains of industry won’t be aboard…they’ll be watching it from their yachts while sipping Bouchard Aine and Fils Rose.


Vern Gowdie,
Editor, Markets & Money

Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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