Is the GFC Over?

Do you want the good news first or the bad news?

 If you live in Australia, the ‘good news’ is that we have ‘beaten’ the GFC (global financial crisis, which began 2007/2008). This is according to our Reserve Bank Governor, Glenn Stevens.

Now, the bad news. Stevens is raising our interest rates!

During the GFC, Australia apparently received ‘tropical rain’ while America and elsewhere experienced cyclones. With Australia looking good and China, our good customer, rising higher and higher in the global economy, perhaps we can take a breather. Loosen our belts alittle and enjoy life.

Not so fast...  Before people ‘pop the champagne cork’ there are a few things to bear in mind:

In Australia, the economy has held up reasonably well, especially in the area of unemployment (5.3% in February 2010). The Reserve Bank raised interest rates a quarter of a percent to 4%. The 10 year average on a basic variable rate was 6.6%, so things are still under control. But it is not cause for celebration.

Home affordability, which was a campaign promise of the current Rudd Government, is becoming less, not more. This puts enormous strains on families, meaning that a minimum of 2 (above average) incomes are required just to service a mortgage of between $250,000 to $500,000. Housing prices remain stubbornly high and are even increasing. So are rental properties.

In the March 8th (Melbourne) Herald Sun, in an article entitled ‘2010: Bricks and Torture’ by Lisa Mayoh, it now takes the average family three times as long to repay a mortgage than it did in 1960. Back then, with a wage of $1.08 an hour, it took 25 hours to earn the $25 a month repayment for a mortgage of $4,620 at 5%. Today, at $30 an hour, it takes 70 hours or nearly two weeks to make the monthly repayment of $2,124 to pay a mortgage of $283,000 at 6.64%.

In summary, a 1960 house took 7,500 hours of work to pay off.

In 2010, it now takes 19,374 hours to pay off the house.

The Rudd Government recently loosened Australia’s normally strict home ownership rules. Now certain overseas people, looking for an investment in safe and stable Australia, are able to buy homes here. In some cases, they are paying even double the amount of what is being asked. This makes home affordability even more elusive.

But there is more. We are all part of a global economy (it is like saying we are all connected to the same oceans, even if they have different names). While it is possible to have ‘ports’ and ‘shelters’ along the coast, ultimately what happens in one major economy affects the other. And some parts of the global economy are not doing very well.

For example, within the European Union, there is the serious situation with five member states known by the acronym PIIGS. This stands for Portugal, Ireland, Italy, Greece, and Spain, who are all in economic trouble. In Greece’s case, they have a bloated bureaucracy and a high rate of tax evasion. How the EU handles this crisis remains to be seen, but what happens to one (or, in this case, five) members affects the entire Union.

Then there is the United States. ‘Experts’ are saying that the Obama Administrations ‘bailouts,’ ‘stimulus package,’ and general intervention, have prevented another Great Depression. We hope and pray this is the case. But remember that America’s is just under 10 percent unemployment, the housing market is flat, and a staggering $1.6 trillion dollar budget deficit for the fiscal year is forecast (remember the time of $300-400 million budget deficits? Seemed then like the ‘good ole days’). In addition, a couple of the big American banks are still in trouble, even with government bailouts. The notion of ‘too big to fail’ may not apply this time around. If the world’s sole military and economic superpower falters, there is no way the rest of the world will not feel the affects.

So will we be having GFC Mark II? We might. What can we do?

Practical Advice for Our Global Friends

First, I would caution anyone to be careful about getting into debt. It should be comfortably ‘serviceable debt’ for something that is sure to increase in value in the long term. Don’t look for a fast fix or a ‘get rich quick’ scheme. Look long term! If you cannot comfortably service the debt, or if you are in danger of ‘losing sleep’ over it, then don’t do it! Try to finance on one income rather than two ... because if the 2nd income ceases, the strain on your finances could be unbearable.

Second, do everything in your power to retire debt. Debt reduction, not debt expansion, should be a top priority.

Third, do what Joseph did in the Book of Genesis. If you are experiencing ‘good times,’ then store away for the ‘lean years.’ Live within or below your means. Spend less, earn more.

Fourth, make a budget and live by it. Put a section in for unforeseeable circumstances, which can happen to anyone. So no matter what happens, you can breathe easier.

Fifth, remember there are two economies: the global economy and God’s economy. Everyone is affected by the first, but only the people of faith enjoy the second. The good news is that God’s economy is stronger, more resilient, and able to overcome and override the global economy.

The example of Isaac in Genesis 26 is revealing. Wherever he placed his spade, a well of springing water flow. When he sowed in the land, he reaped 100-fold. Remember the ‘land’ was the parched Negev wilderness, with an annual rainfall of 5 cm. Remarkably, Isaac prospered during a time of drought and famine. It was because he lived on God’s economy, not man’s. Habakkuk discovered the same thing in Chapter 3:17-19.

Whatever you do, start living by God’s economy, which includes faith, discipline, obedience, giving (sowing) and reaping. You cannot go wrong and will never look back.