how to budget personal finances

Did the author actually say that "borrowing now exceeds tax revenue"? How embarrassing!



I hate to be the one that tells you, Megan, but every nation DESIGNED their currency operations to work that way, when they went off of the gold std back in the 1920s & 1930s. The last vestige, pegging to the $US & thereby to gold, disappeared in 1973. That's been a long time. In 2010 there is simply no excuse for not knowing how simple monetary operations work. It's not rocket science.



In nearly every country in the world, currency creation & currency supply is now fairly directly linked only to public initiative and the general well being of the populous. If population or economic activity increases, OF COURSE currency supply must increase faster than taxes. What part of economic growth don't people understand? Currency operations are not so different from motherhood. You feed the fetus & baby first, often for years, keep accurate growth records, and your family, tribe or nation benefits only in the long run. There's no inherent value in the record keeping itself. Keep that in mind & everything else falls into place.



CURRENCY ISSUERS manage real goods budgets, and issue currency only for internal bookkeeping, to denominate real transactions. (& issuers tax ONLY to control inflation and/or to serve narrow political interests; usually to keep the poor poor & make the rich richer)



CURRENCY USERS typically use currency budgets as an accurate, short term proxy for a local real goods budget. But even currency users should never be confused enough to try to save "fiat" instead of building capabilities or at least hoarding more real assets.



Beardsley Ruml pointed out the obvious, in 1946, "Taxes for Revenue Are Obsolete" http://tinyurl.com/y3dkda3



If anyone has trouble understanding how monetary operations actually work, try these intro texts.



http://www.monetary.org/briefusmonetaryhistory.htm

http://www.cfeps.org/pubs/pn-pdf/PolicyNote2006-1.pdf

http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/

http://bilbo.economicoutlook.net/blog/?p=2943

http://www.moslereconomics.com/2009/11/04/short-rate-thoughts-deflation-radical-thesis-turnaround/

http://www.eh.net/book_reviews/handbook-world-exchange-rates-1590-1914

The party is over in Australia. Many anti-dollar investors and Pollyannas living down under just don't realize it yet. Nonetheless, Australia faces an economic crunch as family finances collapse under the burden of record debts, rising interest rates and utility bills.

Please consider Australians sinking under debt burden

With banks warning they will be forced to raise mortgage rates by 0.50 per cent in 2011 and Sydney rents forecast to rise by between $160 and $190 a month, according to analysts Residex, householders look set to suffer.

Repossessions and tenant evictions are expected to rise sharply. "It's going to be tough" said Shane Oliver, chief economist at AMP Capital. "Families face many rising costs and while most people have slowed their borrowing, our debt is still growing and that's a big problem."

Despite more cautious spending in recent months, household debt is still up by 5.8 per cent on a year ago and a recent survey by Westpac found only about 20 per cent of people thought paying off debts was the best use of their money. Most households in the US, UK and much of Europe are still busily paying down their borrowings, particularly unsecured debts such as personal loans and credit cards.

"Unlike the rest of the world, Australia has slipped back into its old habits," said Steve Keen, professor of economics at the University of Western Sydney. "We're spending ourselves right back into trouble. With so much extra debt to service, we don't need interest rates to reach anything like the 9.6 per cent they hit in 2008.

"We may find repossessions spiking much more quickly than they did two years ago."

Weekly Living Costs Up $100

Real estate has peaked and so has the shopping center economic model based on the strong Australian dollar. There is no reason here to like either Australian equities or the Australian dollar. Strong commodity prices will no longer help Australia.

Australian real estate has already been hit by rising interest rates and with Weekly living costs up $100, more rate hikes may be coming.

FAMILIES face cost-of-living increases that could drain the weekly budget by up to $100 this year.

New data shows Australians are being levelled with record expenses for basic services and Sydney residents are some of the hardest hit in the country.

After floods that have wiped out crops in Queensland and NSW, fruit and vegetable prices are predicted to rise by up to 50 per cent.
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Any hope the strong Australian dollar would shield motorists from increases in fuel prices have been dashed - global oil prices are tipped to hit record highs.

This year's price increases will compound the cost pressures already inflicted on households.

The trio of utility costs alone represents an extra yearly burden of about $1000 - or $20 a week - for an average household of four, while grocery bills are set to rise on average by $50 a week, based on a weekly bill of $150.

Housing affordability has taken another dive, with industry figures showing the largest annual decrease in a decade.

A report by the Real Estate Institute of Australia showed the proportion of income required to meet loan repayments increased 5.8 per cent to 34.8 per cent over last year, a 10-year high.

Additionally, the amount of rent people are paying has increased by 18.6 per cent in Sydney over three years, above the national average.

The Bureau of Statistics also identified health costs, communications services and petrol prices as having risen sharply over the year.

$AORD - Australian Stock Market Index Monthly



$AORD - Australian Stock Market Index Weekly



$SSEC - Shanghai Stock Market Index Weekly



Both the Australian stock market and the Chinese stock market have been weak. This is in spite of the fact that commodities have been on fire. Both countries have had overheating economies led by real estate bubbles.

It will be interesting to see how the Reserve Bank of Australia handles this. Failure to hike rates would hurt the Australian dollar and increase the price of imports while hiking rates further will crush the real estate bubble.

China's problem is far more complex. For more on China please see

• Misguided Love Affair with China; China's Massive Monetary Expansion and Crackup Boom
• China Hikes Rates, Ponders Capital Controls to Halt Currency Inflows; Eight Reasons China Faces Hard Landing

There are no good solutions when the central bank lets real estate bubbles get out of hand as has happened in the US, China, Australia, Canada, Ireland, Spain, the UK and numerous other places.

The difference so far is the US, Ireland, and Spain property bubble have popped, while those in Australia, Canada, and China are just now facing the pressure.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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